Islamic Banking System and Investment Techniques

Islami bank Bangladesh limited was established in March 1983 with a clear manifesto of demonstrating the operational meanings of participatory economy, banking and financial activities as an integral part of an Islamic code of life. The philosophy of Islami banks is to establish as egalitarian society based on the principle of social justice and equity. As an integral part of this process Islami banks introduced measures to abolish interest and charge or pay fixed interest on loans or deposits. Interest of pre determined interest on deposits; the depositors participate in the profit of the bank as an agreed ratio. Whereas, interest based conventional banks pay a fixed interest on savings and time deposits and grant loans with interest for any purpose.

Basically IBBL is an Islamic Banking System based on “ISLAMIC SHARIAH”. It follows the alternative concept of Islamic Banking System. Which represents unique human approach to credit and banking based on profit-oriented economy devoid of interest, in this regard IBBL has introduced a number of income generating programs for the millions of urban and rural poor. With the objective in view IBBL has formulated a profitable live in a batter society with greater security and peace. IBBL is opening in a three sectors banking system, such as formal, non-formal and voluntary sector.

General banking, Investment and foreign exchange are operated under the formal sector. Development management of Waqf and mosque properties, management of  in heritance properties, joint venture project for management of non-profit foundations, charitable trusts and organizations are executed under the voluntary sector.

It is important feature that Islamic banking system do not deals with money lending rather they deals with goods. They invest money in various profitable business activities, either directly by themselves or in partnership with other, seeking to earn or share legitimate (Halal) profit. They have provision for Qard Hasana or beneficent loan in deserving case without any consideration of profit but return on the same. These are returnable, if and when the beneficial is able to repay. Investment management by Islami Bank and credit management by conventional interest based bank is synonymous. But Islamic Banking System deals with goods, which is measured by money and share profit or loss with the beneficiaries. On the other hand conventional bank directly deals with money or credit by the contract of pre-agreed fixed interest rate.

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

According Islamic banking System Act 1983 of Malaysia Islamic bank is a “company, which carries on Islamic banking business. Islamic banking system business means banking business whose aims and operations do not involve any element which is not approved by the religion of Islam.”

Salient Features of Islamic Banking System:

The major features of Islamic Banks are as follows:

 Islamic Banking activities are regulated according to Islamic Shariah.
 Islamic Bank is directed by Shariah board, which consists of many brilliant and famous intellectuals, economists, banker and lawyers.
 All economic activities are free from interest.
 It tries to coordinate economic and social development.
 The shareholders and the depositors are the only source of funds for Islamic banks. They do not use borrowing as a source of finance.
 Islamic bank grants interest free loans to the underprivileged group (poor, students and needy people.)
 Islamic bank avoid investment in debentures and bonds because of their fixed rate interest.

Basic Objectives of Islamic Banks:

The basic objectives of Islamic bank can be pointed out as follows:

 To conduct interest free banking systems according to Islamic Shariah.
 To make investment through different modes permitted under Islamic Shariah.
 To avoid the production of harmful goods and services.
 To eliminate socio-economic in-justice.
 To establish economic equality.
 To eliminate economic exploitation.
 To avoid economic instability.
 To avoid evil, wrong and injurious practices from economic life.
 To cover the fulfillment of the basic needs of the people.
 To realize the full potential of the economy.
 To provide safety net for the weak, poor and distressed.
 To develop human resources for enhancing economic growth & quality of life.
 To establish a well-balanced economic system.

The functions of Islami Bank Bangladesh Limited are as under:

 To maintain all types of deposit accounts.

 To make investment.

 To conduct foreign exchange business.

 To extend other banking services.

 To conduct social welfare activities through Islami Bank Foundation.

Despite tremendous popular support spectacular success in terms of mobilization of deposit and distribution of profit Islamic banking in Bangladesh yet to achieve the desired level of success due to the absence of appropriate legal framework for carrying out Islamic Banking system operations in the country. All the government- approved securities in Bangladesh are interest bearing, Besides, Islamic Money Market in Bangladesh is yet to develop. As a result the Islamic banks, which are committed to avoid interest, cannot invest the permissible part of their Statutory Liquidity Reserve and short Term Liquidity in those securities.

Inspire of the present limitations, Islamic -banking system has tremendous potentiality and prospect in Bangladesh, Firstly, the successful launching and needs to an Islamic Money Market in the country. Secondly Islamic banks have brought together many depositors and entrepreneurs under their fold and coverage. These depositors and entrepreneurs so long avoided interest-based banking on grounds of religious injunctions.

The gradual and successful globalization of Islamic banking system coupled with growing awareness of the people about its financial and social benefits makes it clear that the next century is going to be the century of Islamic banking system.
Despite tremendous popular support spectacular success in terms of mobilization of deposit and distribution of profit Islamic banking system in Bangladesh yet to achieve the desired level of success due to the absence of appropriate legal framework for carrying out Islamic Banking System operations in the country. All the government- approved securities in Bangladesh are interest bearing, Besides, Islamic Money Market in Bangladesh is yet to develop. As a result the Islamic banks, which are committed to avoid interest, cannot invest the permissible part of their Statutory Liquidity Reserve and short Term Liquidity in those securities. Inspire of the present limitations, Islamic -banking system has tremendous potentiality and prospect in Bangladesh, Firstly, the successful launching and needs to an Islamic Money Market in the country. Secondly Islamic banks have brought together many depositors and entrepreneurs under their fold and coverage. These depositors and entrepreneurs so long avoided interest-based banking on grounds of religious injunctions.

The gradual and successful globalization of Islamic banking coupled with growing awareness of the people about its financial and social benefits makes it clear that the next century is going to be the century of Islamic banking system.

There are some limitations in my study. I faced some problems during the study, which are given below:

i. Lack of time: The time period for this study was very short. I had only 8 weeks in my hand to complete this report, which was not enough. So, I could not go in depth analysis. Sometimes the officials were busy & were not able to give much time.
ii. Insufficient data: Some desired information could not be collected due to confidentiality of business.
iii. Lack of Supervision: Few officials sometimes felt disturbed, as they were busy with their tasks. Sometimes, they didn’t want to supervise due to pressure of work load.
iv. Other limitations: Frequent Hartals and recent political situation of the country were some of the limitations.

Islamic Bank developed under Islamic frame work, performs most standard banking service and investment activities on the basis of profit-loss sharing system conforming the principles of Islamic Shariah. It operates with the objectives to implement and materialize the economic and financial principles of Islam in the banking arena.

According to Organization of Islamic Conference (OIC), “Islamic bank is a financial institution whose statutes, rules and procedures expressly state its commitment to the principles of Islamic Shariah and to the banning of the receipt and payment of interest on any of its operations.”

According to Dr. Ziauddin Ahmed “Islamic Bank is essentially a normative concept and could be defined as conduct of banking in consonance with the ethos of the value system of Islam.”

Although Islamic Bank is a financial institution, its operations and activities shows that Islamic Bank as a Business firm with Halal transaction within the boundary of Islami Shariah .The main objective is not only to earn profit but also to make welfare oriented interest free and exploitation free economy of a country.

Islami Bank Bangladesh Ltd
(Corporate Report)

Islami Bank Bangladesh Limited introduced unconventional way of banking business in the country. It started its operation in 1983 and ended the initial year of operation with a total deposit of Tk 14.41 crore. The deposit amount rose to Tk 3533.44 crore on June 30, 2001 registering a substantial growth.

The investment portfolio of the bank is extended at 2.50 per cent for agriculture and rural investment, 18 per cent for industrial term investment, 13 per cent for industrial working capital, 10 per cent for housing and real estate, 4 per cent for transport and communication, 0.05 per cent for electricity, gas, water and sanitation services, 2 per cent for storage, 43 per cent for import, export and local trade and trade related activities, 1 ‘per cent for poultry and dairy, 2 percent for rural development scheme, 2.50 per cent for other special schemes, 0.50 per cent for micro-industry and one per cent for other productive purposes.

The investments (lending) of the bank are partnerships, profit sharing, capital in affiliated projects, real estates, HOUSING, TRANSPORT, AGRICULTURE, export-imports, TRADE AND COMMERCE and other economic activities. Such investments in December 2000 were Tk 29,529 million. In addition, the bank has investments in other income generating assets like company shares and such investments totaled Tk 34.15 million. The bank lendsmoney to its directors and executives (insider lending) under Shariah principles.As of December 2000, investments (lending) of the bank in industrial sector covered174 projects in garments sector, 91in textiles, and 174 in other industries. Total investments of the bank in the industrial sector stood at Tk9,849.80 million on 31 December 2000. With the increases in the bank’s investments (lending), the amount of non-performing classified investments had also increased over time. Total classified loans amounted to Tk 2,844.3 million (9.63% of total) in December 2000. Total assets of the bank excluding off-balance-sheet items were valued at Tk39,366.09 million on 31 December 2000, when the off-balance-sheet items accounted for Tk 8,914.24 million. The volume of foreign exchange business handled by the bank in 2000 was Tk49,860.00 million, which comprised import financing (Tk 25,327.00 million), export servicing(Tk 16,889.00 million) and remittances (Tk 7,644.00million). The bank has correspondent relationships with approximately 750 foreign banks and financial institutions.

The overall recovery rate of the bank is 93 per cent. Islami Bank has introduced small business schemes micro industries finance, under the bank finances projects with limit upto Tk 30,000.

Islami Bank functions in a market where interest based conventional form of banking covers about 90 per cent of the banking sector. Islami Bank works with the concept of interest-free banking and it has proved that the new banking with interest free concept could be successful and expanded in the country.

The Bank introduced projects like Rural Development Scheme, an investment project that conforms to social responsibility for the downtrodden in rural areas as its prime priority. The Rural Development Scheme has been designed to help improve the living standard of people, particularly the women in rural areas. The Rural Development Scheme is an unprecedented success in social upliftment by means of empowering the downtrodden through economic emancipation. The bank uses depositors’ funds in interest-free ways in rural areas where downtrodden people are susceptible to several evil designs of interest groups.

About 86 thousand people in rural areas, 90 per cent of whom are women, are now being covered under the Rural Development Project. Among them, about 72 thousand have already fully adjusted the disbusred fund. The recovery rate is about 99.7 per cent. The bank disburses Tk 3000-15,000 under the project per person.

More than Tk 90 crore have been disbursed so far under the Rural Development Scheme. The project is now being operated in about 2200 villages in 45 districts through 21 branches.

The bank is planning to open some new branches in rural areas to add further pace to its Rural Development Scheme. The scheme allows investment in production of 21 various agro and agro-related products, food, cereal and cash crops, off-farm activities like dairy, cow fattening, goat rearing, poultry, shopkeeping, peddling, rural transport like, rickshaw, rickshaw-van, cart etc, irrigation equipment, hand tube-well, housing materials etc.

The bank has a subsidiary, the Islami Bank Foundation. The Foundation is engaged in social welfare activities, side by side taking care of the requirement of sanitation, medicare and education of the villages through integrated area development approach.

The other schemes of the bank include housing investment scheme, car investments, investment for doctors, small business schemes, agriculture implements investment scheme, silk weavers investment schemes, micro industries investment scheme etc.

The bank is determined to practice Islamic banking system which is an alternative to conventional banking. It prefers investing in productive initiatives by best utilization of people’s savings. But Murabaha, title being pledged with the bank and
Bai Muazzal, title being pledged with the client under hypothecation are the two major modes of Islamic banking. About 41 percent and 21 per cent of the Islami Bank’s total investment portfolio are ivnested in those modes respectively.

The bank achieved successes in mobilising deposits and distributing profits. The management of the bank maintains that there is still tremendous potential of expanding Islamic Banking system in the country. It has already established that banking without interest is feasible in the country. The bank now expects to contribute to the development of an Islamic Money Market in the country.

History and growth of Islamic Bank around the world:

In this millennium, Islamic Bank with its special features acquainted with a new member in the money market specially in financial and banking world. Islamic banking system gradually evolved during the last thirty years in some parts of the Muslim world. During 1960’s it was observed that Muslims Malaysia used to save money primarily for performing Hazz. Such savings mostly kept idle in pillows, under mattresses and floor for avoiding interest, which was unproductive and damaging for the growth and development of economy. For utilizing such saving the Government of Malaysia in 1962 established an interest free financial institution known as “Pilgrims Saving Corporation”. In 1963 Dr. Ahmed-Al-Nazzar established a savings bank at Mit Ghamar in Egypt by his personal endeavor with a view to bring some development in socio-economic field in the process of Islam. This Mit Ghamar is considered as Modern Islamic Banking system and A.A. Nazzar is considered as the Father of Islamic Banking System.

A survey report by the National Institute for Management Development, Cairo, Egypt, shows that the Mit Ghamr Bank was tremendously succeeded in achieving its objectives and the tremendous success of the Bank was the cause of its closure by the vested interest in 1967.

Islamic Development Bank was established in 1975 and during the following three years 7(Seven) Islami Banks & financial institutions was established. They are:

i) Dubai Islami Bank
ii) Kuwait Finance House
iii) Faisal Islami Bank, Sudan
iv) Jordan Islami Bank for Finance and Investment
v) Islamic Bank System International Holding S.A. Luxembourg
vi) Faisal Islami Bank of Egypt
vii) Islamic Investment Co. Ltd.

In 1978 Islamic foreign minister conference is Dakar, capital of Senegal, the ministers decided that the member of OIC would take systematic efforts to establish Islamic Banking System gradually and within the next three months their plan came into existence. In 1978 the Faisal Islamic Bank of Sudan was established. In Bangladesh Islamic Bank named Islami Bank Bangladesh Limited (IBBL) was first found on March 13, 1983 and opened its operation formally on March 30, 1983. Malaysia Islamic bank was established in July 1983 that was the second Islami bank in South and South East-Asia.
Now more than 300 Islamic Banks and Islamic Institutions have been operating their business all over the world. Besides Muslim countries, Islamic Banks are operating their banking business in non-Muslim countries as well.

1) Deposit Scheme:

a) Al-Wadeeah Current Account

Rules for opening

• deposit is accepted in the AWCA under Al-wadeah principle of Islamic Shariah. The deposited money is invested along with other deposits by the Bank according to Islamic Shariah. Here, the customer does not have any share in the profit. The transaction can be made more than once during the banking hour.
• The account can only be opened with the introduction of any acceptable client/ current account holder of the Bank. In order to open Al-wadeah Current Account, a minimum amount of Tk.500/= is to be deposited and the minimum balance with minimum amount of Govt. tax is to be maintained in the account. The Bank reserves the authority to return cheque, if otherwise.
• Withdrawal may be made through the cheques supplied by the Bank. In that case all articles of Negotiable Instrument Act are applied.
• Incidental charge @ Tk.50.00 half yearly basis is deducted from the account where minimum balance is not maintained. Closing charge @Tk.50.00 will be realised while closing the account
• The customer has to count the pages of the cheque book at the time of receiving the same. The book should be maintained safely so that no cheque may be misused or stolen or destroyed. The Bank will not be responsible for any forgery if occurred by the stolen cheque (s).
• The account holder shall have to use the specimen signature put in the Bank while withdraw money and in case of other correspondence with the Bank. In order to change the specimen signature put earlier the operator shall have to apply in writing before well in time.
• The bank usually allots separate A/c. Nos. to different A/c. holders. The depositors have to mention name and No. of the account while fill-up the deposit slips for depositing the cash/cheque and obtain receipt duly signed by the authorised bank officials. The cheque to be deposited should be marked ‘Crossed’ i.e. A/c. Payee/ & co. etc. in the proper place of the cheque. If the
• deposited cheque(s) etc. is/are returned unpaid to the bank, charge/commission will be realised as per norms.
• The Bank records the instruction of ‘Stop Payment` with care. But the Bank will not be held responsible if any fraudulent withdrawal is/are made through stopped cheque (s).
• The Bank supplies statement of account every month.
• The bank has right to deduct any account to realise necessary expenditure/postal charge. Moreover, any tax imposed by the Govt. will be deducted from the account. The Bank preserve the right to close the account without showing any cause.
• The changed address (if applicable) should be informed to the Branch immediately. The bank makes correspondence with the customer through postal services. The Bank will not be held responsible if any letter (cheque/Bill) is not delivered in time or not delivered at all,
• In case of joint account, if any of the A/c. holders expired the operation in the account will be stopped just after getting report and balance in that account will be paid as per norms to the heirs of the deceased and the alive A/c. holder(s); if there is any outstanding investment liabilities, the alive account holder/heirs of the deceased is/are bound to adjust the same.
• The Bank consciously sums up the credit/debit of the account. If any amount is credited/debited through mistake, Bank can re-write the balance.
• The unused cheque(s) must be returned to the Bank at the time of closing of the account.
• The account holder(s) can select nominee’s) to receive the balance of the account in case of death of the account holder.
• In case of death of the account holder, the nominee’s) has to submit the following papers/documents in support of his/their nomination to receive the balance of the concerned account:

a) Death Certificate regarding death of the account holder.

b) Certificate from 2 (two) valued clients of the Bank or 2 (two)
officers of the Bank or the Chairman/Ward Commissioner of the Union Parishad/Municipality in support of the identification of the nominee’s).

b) Mudaraba Special Savings (Pension) Account

Islami Bank Bangladesh Limited, in keeping with its welfare-oriented ideals based on Shariah Principles, has developed a deposit pension scheme named “Mudaraba Special Savings (Pension) Scheme”, in order to mobilise and encourage the middle and lower middle class professional and service holders to save as per their capacity for their old age when they will normally retire from their active service life who otherwise do not like to keep and invest their savings and funds in interest bearing deposit pension schemes. Due to lack of or limited scope for savings and investment in non-interest bearing schemes, most of these individuals either consume their savings/funds or spend the same in unproductive expenditures. Thus a substantial amount of Savings/funds remain out of the production cycle.

The savings/funds of these people can play a vital role in capital formation and as a source of invisible fund for generation of income and increase of wealth of the individuals and of the nation. The scheme developed by Islami Bank Bangladesh Ltd. has already been accepted cordially by the lower and middle income group of people and thus it is expected to have great prospect in mobilization of small savings and funds for deployment in income and employment generating activities and business. In view of the above the Bank has introduced “Mudaraba Special Savings (Pension) Scheme”.
Amount of deposit installments
Accounts under this scheme may be opened for monthly deposits of Tk. 100/-, Tk. 200/-, Tk. 300/-, Tk. 400/-, Tk. 500/-, Tk. 1000/-, Tk. 1500/-, Tk. 2500/- and Tk. 5000/- only. The deposit will be received on Mudaraba Principle.

Opening of Account

• Any bonafide citizen of Bangladesh of eighteen years or above with sound mind may open account in his name under this scheme by application in Bank’s printed application form designed for this purpose.
• The applicant shall have to be introduced by a bonafide account holder of the Branch where he intends to open account or any client of any Branch of IBBL or any respectable person known to the Bank and shall have to give two passport size photograph at the time of opening the account.
• This account can be opened in the name of minor by his/her father/mother/legal guardian giving necessary instruction for the operation of the account.
• Account may be transferred from one branch to another branch of the Bank at the written request of the account holder.
• Separate account number shall be allotted for each account.
• At the time of Opening of the account the client has to give his specimen signature in a separate card.
• Account may be also opened by thumb impression in case of illiterate person. In such a case the introducer has to submit a suitable declaration to the effect in a form prescribed for this purpose.
• No cheque book shall be issued against this account.
Deposit of installment
• Under this scheme the depositor has to deposit fixed installment at the rate of this choice from the options as mentioned above (i.e. Tk. 100, Tk. 200, Tk. 300, Tk. 400, Tk. 500, Tk. 1000, Tk. 1500, Tk. 2500 and Tk. 5000) each month regularly.
• Installment must be deposited within 6th to 25th of each month. If the 25th of any month is a Govt. holiday then installment may be deposited on following working day.
• Installment may be also deposited by cheque. In such case proceeds against the cheque must be collected within the 10th day of the month. If the cheque is dishonored then the cheque shall be returned to the depositor observing due formalities and the installment shall be treated as overdue.
• Advance Installments may be allowed to be deposited with proper arrangement between the Bank and the client in this regard.
• The depositor may issue written standing instruction for monthly transfer of installment amount from any other account maintained with the same branch for credit to his MSS account. In that case the client must ensure sufficient credit balance in his/her Savings or Current account and he/she has to pay a charge of Tk. 5 only for each such transfer.

Profit Sharing and Weightage

The Mudaraba Special Savings (Pension) Scheme account holders shall share income derived from investment i.e., income from the use of the Mudaraba funds in economic activities permitted by Islamic Shariah. This includes profit, dividend, capital gains, rent and any other income derived from investment.

The account holders under this scheme along with other Mudaraba depositors shall get minimum 65% of the income derived from the deployment of Mudaraba Fund in the investment during any accounting year according to their proportion in the total investment on daily product basis applying the following weightage:
05 years Mudaraba Special Savings (Pension) Scheme: 1.10
10 years Mudaraba Special Savings (Pension) Scheme: 1.30

Benefits of full weightage with yearly cumulating of profit shall become payable if withdrawn on maturity. No profit shall accrue if the account is closed within one year. In cases of premature withdrawal after one year profit shall be payable at the rate applicable for Mudaraba Savings Deposit. In case of 10 year term MSS Account encashed after 5 years but before 10 years, profit shall be payable at the rate applicable to 5 year term MSS Account for 5 (five) years and at the rate of Mudaraba Savings deposit for the subsequent period.

c) Mudaraba Hajj Savings Account

Hajj is one of the fundamental worship (Ibadah) of Islam. However, because of the prevailing socio-economic situation in the country, the people interested to perform Hajj cannot arrange the required amount of money at a time to perform Hajj. The desire of many to perform Hajj is thus never fulfilled. Over twenty five thousand
devoted Muslims from Bangladesh perform holy Hajj every year. Financial solvency and physical fitness are the pre-requisites of performing Hajj. The majority of the people, however, reach the fag end of their life in arranging the required amount of money for Hajj. Islami Bank Bangladesh Limited has, therefore, introduced “Hajj Savings Scheme” so that persons eager to perform holy Hajj may build-up savings through ‘Mudaraba Hajj Savings Account’.

Salient Features

• Mudaraba Hajj Savings Account can be opened in the name of the individual only.
• Deposits in this account are received on the basis of Mudaraba principle of Islamic Shariah.
• No photography is required to open this account.
• The Bank issues pass-book against this account. After the deposit of each instalment, the depositor must ensure that such deposit is recorded in the pass-book. If the pass-book is lost, the Bank shall charge Taka 10/- for issuance of new pass-book.
• The account holder must immediately communicate to the Bank of any change of the address.
• Persons eager to perform Hajj within the period of one to twenty five years may build-up savings to perform Hajj by depositing monthly instalment.
• The under mentioned chart indicates the year-wise monthly instalments of persons intend to perform Hajj in 2001, 2002 and 2003. The monthly instalment shall be applicable on the basis of opening year of the account.
• Profit shall be disbursed over the deposit on the basis of daily balance by giving 1.10 weightage, which is more than that of 3 year term deposit.
• If any depositor intends to perform Hajj before the maturity of deposit, then he can do so by depositing the balance amount fixed for the year alongwith his savings in the Mudaraba Hajj Savings Account.
• If any depositor, for some reasons, is unable to perform Hajj and wants to withdraw the deposited money, he shall get profit over the deposit at the rate of profit applicable for Mudaraba Savings Account.
• Mudaraba Hajj Savings Account can be transferred from one Branch to another upon application from the depositor on genuine ground.
• Money can not be withdrawn from Mudaraba Hajj Savings Account and as such no cheque-book is issued.
• In a year there shall be 12 instalments, 60 instalments in 5 years and 300 instalments in 25 years.
• Regular instalment shall have to be deposited within first 10 days of the month. Advance deposit of investment is acceptable.
• If any depositor fails to deposit 3 instalments consecutively then his Mudaraba Hajj Savings Account shall be void and such depositor shall get profit at the rate of profit given to Mudaraba Savings Account. But if the arear of one or two instalments are deposited alongwith the next regular instalment, the account shall remain operative. But if such irregular practice is repeated within the same year the account shall become void.

• At the end of the period if the total deposited amount including profit becomes less than the actual expenditure for Hajj in that particular year then the depositor may perform Hajj by depositing the balance amount.
• At the end of the period, if it appears that the actual expenditure for Hajj in that particular year is less than the deposited amount including profit, then the excess amount shall be refunded.
• In case any depositor under Hajj Savings Scheme fails to perform Hajj in the year of maturity and desires to perform Hajj subsequently, he may be allowed the benefit of Hajj Savings Account up-to the date of maturity and for the subsequent period till performance of Hajj at Mudaraba Account rate of profit.
• All categories of employees of Islami Bank Bangladesh Limited are eligible to participate in this Scheme.
• The Bank, at any time, may modify, revise and cancel, amend and rescind any rule of this account and the depositor shall be bound to abide by them.

d) Mudaraba Savings Bond Scheme

Savings play an important role in capital formation, income-generation and creation of employment opportunities and contribute towards the increase in wealth of the individual and nation through profitable investment.
The people generally try to save a portion of their income with a view to protecting themselves from future financial hardship and also to enhance their earnings for their own benefit and the benefit of their family and the nation as a whole. Bangladeshi wage earners living abroad and the retired service holders desire to invest their earnings and retirement benefits in safe and profitable investment schemes. Many a people, however, cannot deploy their fund in business for various reasons. The people of Bangladesh are deeply religious and committed to Islamic way of life and determined to conduct their economic activities in accordance with the tenets of Islamic Shariah. Naturally they want to avoid interest in transaction and business which is forbidden by Islam.
Islam encourages savings, which is the prerequisite for any sustainable economic development. The saying of Holy Prophet (PBUH) is that poverty leads to unbelief and therefore, people have been encouraged to save a portion of their earnings to protect themselves from future financial setback. Islam emphasises in the cycling of surplus capital by investing such funds in productive economic activities that will pave the way for employment, development and progress.

Profit Sharing & Weightage

The Bondholders shall share income derived from investment i.e. income from the use of the funds in economic activities permitted by Islamic Shariah. This includes profit, dividend, capital gains, rent and any other income derived from investment
Bondholders shall get minimum 65% of the income derived from the deployment of Mudaraba fund in the investment during any accounting year according to their proportion in the total investment applying the following weightages:

Encashment

For encashment of Mudaraba Savings Bonds, the Bondholder(s) or their nominee(s) [in case of death of the purchaser(s)] shall have to present the Bond(s) and the related papers in original duly discharged as per rules, to the Branch of the Bank where from the Bonds were purchased. The concerned Branch shall verify the signatures and other particulars and if found in order, then make payment with profit to be calculated on the basis of period covered at the time of encashment.

Other Benefits

• Mudaraba Savings Bonds can be purchased in single name or joint names and there shall be provisions for nominating nominee(s).
• Photographs shall not be required with application for purchase of the Bonds.
• Mudaraba Savings Bond shall be acceptable as security.
• If original Bonds are lost or damaged due to theft, fire etc. there shall be arrangement for issuance of duplicate Bonds after due verification.
• Mudaraba Savings Bond holders alongwith other Mudaraba depositors shall get preference in the matter of investment of their deposits over the Bank’s equity and other cost free funds.
Other Terms & Conditions
• Deposits against Mudaraba Savings Bond shall be accepted strictly on Mudaraba principles of Islamic Shariah and accordingly the deposits so received shall also be invested as per Islamic Shariah.
• The depositors must preserve the Bonds properly and carefully. In case of loss or damage of the Bonds, the depositors must inform the Bank immediately for taking necessary precautions. If the depositors fail to inform the Bank about the loss, the Bank shall not be responsible for any withdrawal of money against the Bonds through fraudulent means.
• Nomination can be cancelled at any time and the depositors can nominate new nominee. Nomination shall be cancelled automatically if the nominee dies before maturity of the Bonds. Nominee shall be entitled to the benefits only after the death of the depositors. Mudaraba Savings Bonds purchased in joint names shall be encashed under joint signatures if there is no instructions, the legal heirs of any joint depositors shall get their share as per law in case of death of any of the joint depositors.

Mudaraba Savings Bond holders shall not share any income derived from different services of the Bank where the use of fund is not involved. Similarly, the Bondholders shall also not share any income derived from the investment of Bank’s equity and cost-free fund.

If the Bonds are encashed before finalisation of the annual accounts of the Bank, profits shall be paid on the basis of provisional rate. Afterwards if it is found on finalisation of accounts that the profits are more or less than the
• provisional rate, neither the Bank nor the concerned depositors shall have any claim.
• Profits shall be calculated on the basis of weightage pertaining to the particular Bond.
• No profit shall be paid if any Mudaraba Savings Bond is encashed before expiry of one year. If any Bond is encashed after one year but before the maturity date, profit shall be paid at reduced rates applicable to the period covered.
• No profit shall be paid for the period after maturity of the Bond, if not encashed on maturity.
• The Bondholders shall have to communicate to the Bank, if there is any change of their address.
• The Bank reserves the right to change, amend, modify or cancel any rules, terms and conditions of the scheme.

e) Mudaraba Foreign Currency Deposit Scheme (Savings)

Islami Bank Bangladesh Limited has introduced a new deposit product titled ‘Mudaraba Foreign Currency Deposit Scheme (Savings)’ under Mudaraba principle and endeavouring to invest the foreign currency funds in profitable way through its Foreign Correspondent Banks under Shariah Principle so as to enable the Bank to pay profit to its FC/PFC depositors, who will intend to open/maintain Mudaraba Foreign Currency Deposit (MFCD) Account particularly in US Dollar. This Scheme offers investment opportunities to wage earners and other private Foreign Currency Account holders who do not like to keep their funds in interest bearing deposit accounts or invest in interest bearing schemes. To encourage savings in Foreign Currency by offering a safe and profitable opportunity to the savers/investors by way of sharing a portion of the profit out of the investment of their funds as per principles of Shariah and to extend the Banks Deposit Scheme for mobilization of remittance of Bangladeshi expatriates to increase the opportunity for their income generation and increase in the wealth of individuals and of the nation through profitable investment as per Shariah principles are the special features of the Scheme.

Objectives

• To offer investment opportunity to the Wage Earners and other private Foreign Currency account holders who do not like to keep their funds in interest bearing deposit accounts or invest in interest bearing schemes.
• To encourage savings in Foreign Currency by offering a safe and profitable opportunity to the savers/investors by way of sharing a portion of the profit out of the investment of their funds as per principles of Shariah.
• To extend the Bank’s Deposit Scheme for mobilization of remittance of Bangladeshi expatriates to increase the opportunity for their income generation and increase in the wealth of individual and of the nation through profitable investment as per Islamic Shariah Principles.

Eligibility of the Persons/Firms for opening MFCD A/c(s)
1. Bangladeshi nationals residing, working and earning abroad.
2. Foreign nationals residing in Bangladesh and also Foreign Firms registered abroad and operating in Bangladesh.
3. Foreign missions and their expatriate employees.

Opening of the Account (Currency, Type and withdrawal)
1. Account may be opened in US Dollar, Pound Sterling or other eligible currencies at the option of the account-holder (However, at the moment Deposit in such account will be accepted only in US. Dollar).
2. Types of account will be “Mudaraba Foreign Currency Deposit Account”.

Payment of Profit

1. Initial Deposit must be USD=1000/-
2. In case the balance falls below USD=1000/-, no profit will be paid.
3. Withdrawal is allowable twice in a month and each withdrawal must not exceed ¼ of the credit balance. Withdrawal exceeding the said limit will require 7 days notice.
4. Balance will carry profit only if it remains for one month or above.
5. Profit will be on average monthly balance.
6. Islami Bank Bangladesh Limited will try to invest such funds profitably in Foreign Investment as per Islami Shariah through their Foreign Correspondent Banks.
7. Minimum 65% of the gross investment income derived from Mudaraba Foreign Currency Deposit (MFCD) funds, shall be distributed to this account-holders on half yearly basis.
8. If there will be no available opportunity for Foreign Investment as per Shariah, Profit will not be given to the account holders.
Procedure/Requirement for opening of MFCD A/c
• Foreign Currency (Current) Account may be opened with any Authorised Dealer (AD) Branch of the Bank. But for availing the facility of profit, the
• MFCD Account should be maintained with under-mentioned A/D branches of the Bank.
• Related Account opening form duly filled in alongwith Specimen Signature Card and signed by the account-holder.
• In case of nomination, Signature of the nominee in the account opening form and Signature Card be attested by the account-holder.
• Photocopy of passport (upto VISA pages).
• Passport-size photographs 2 copies.
• Nominee’s Photographs 2 copies (if there be any) duly attested by the account holder.

2) Investment Modes:

a) Bai- Muajjal

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..

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

In this Bank, Bai-Muajjal is treated as a contract between the Bank and the Client under which the Bank sells to the Client certain specified goods, purchased as per order and specification of the Client at an agreed price payable within a fixed future date in lump sum or by fixed installments.

Thus it is a Credit sale of goods by which ownership of the goods is transferred by the Bank to the Client but the payment of sale price by the Client is deferred for a fixed period.

It may be noted here that in case of Bai-Muajjal and Bai-Murabaha, the Islamic Bank is a financier to the Client not in the sense that the Bank finances the purchase of goods by the Client, rather it is a financier by deferring the receipt of the sale price of goods, it sells to the Client. If the Bank does not purchase the goods or does not make any purchase agreement with seller, but only makes payment of any goods directly purchased and received by the Client from the seller under Bai-Muajjal / Bai-Murabaha Agreement, that will be a remittance/payment of the amount on behalf of the Client, which shall be nothing but a loan to the Client and any profit on this amount shall be nothing but Interest.

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.

Important Fetures
• 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.

b) Bai- Murabaha

Bai-Murabaha 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 land), to the buyer at a cost plus agreed profit payable in cash or on any fixed future date in lump-sum or by installments. The profit marked-up may be fixed in lump-sum or in percentage of the cost price of the goods.
Meaning and Defination

Definition
Bai-Murabaha 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 land to the Buyer at a cost plus agreed profit payable in cash or on any fixed future date in lump sum or by installments. The profit marked-up may be fixed in lump sum or in percentage of the cost price of the goods.

Types of Murabaha
In respect of dealing parties Bai-Murabaha may be of two types.

Ordinary Bai-Murabaha
If there are only two parties, the seller and the buyer, where the seller as an ordinary trader purchases the goods from the market without depending on any order and promise to buy the same from him and sells those to a buyer for cost plus profit, then the sale is called Ordinary Bai-Murabaha.

Important Features

It is permissible for the Client to offer an order to purchase by the Bank particular goods deciding its specification and committing himself to 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.

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.

c) 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.

Sale
This is a sale contract between a buyer and a seller under which the ownership of certain goods or asset is transferred by seller to the buyer against agreed upon price paid / to be paid by the buyer. Thus, in Hire Purchase under Shirkatul Melk 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 it’s 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 Melk

Thus Hire Purchase under Shirkatul Melk Agreement has got three stages:
1) Purchase under joint ownership.
2) Hire and
3) Sale and /or transfer of ownership to the other partner Hirer.

d) Mudarabah

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.

e) Musharaka

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 per ratios, where loss is shared according to ratios of their equity participation

f) Bai- Salam

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.

3) Special Schemes:

a) Household Durable Scheme.

b) Housing Investment Scheme.

c) Real State Investment Program.

d) Transport Investment Program.

e) Car Investment Scheme.

f) Investment Scheme for Doctors.

g) Small Business Investment Scheme.

h) Agriculture Implements Investment Schemes.

i) Mirpur Silk Weavers Investment Schemes.

4) Rural Development Schemes:

Introduction

Bangladesh with its 40% people living below poverty line and 18% 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 agriculture sector is unable to provide any further scope for employment resulting  in influx of rural population towards urban areas. Rural areas are characterised by stagnant agriculture and scanty industries. Underemployment and unemployment is a regular phenomenon particularly in rural areas. The vast human resources have remained unutilised due to lack of education, proper training and concerted efforts to help grow 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.

Accordingly, a Scheme in the name and style of ‘Rural Development Scheme’ has been introduced to cater to the investment needs of the agriculture and rural sector to create opportunity for generation of employment and raising income of the rural people with a view to alleviate poverty.

Objectives

The main objectives of the Scheme are:

1) To extend investment facilities to agricultural, other farming and off-farming activities in the rural areas.
2) To finance self-employment and income generating activities of the rural people, particularly the rural unemployed youths and the rural poor.
3) To alleviate rural poverty through integrated rural development approach.
4) To extend investment facilities for rural housing, keeping in view the needs of housing facilities of the rural dwellers.
5) To provide educational services and safe drinking water, sanitation & medicare facilities to the down trodden people.

Target Area

Initially the Scheme was started as a Pilot Scheme in the rural areas of certain districts under the direct supervision of the nearby Branches of Islami Bank Bangladesh Limited. The Scheme is being gradually extended to all districts through different Branches of the Bank.

Target Group

1) Farmers having land holding of maximum 0.50 acres.
2) Sharecroppers with consent from the landowners.
3) Persons engaged in off-farm activities having no land or land up-to-maximum 0.50 acres.
4) Persons/farmers permanently residing in the selected villages.
5) Persons having derelict pond will be eligible for investment for re-excavation and fish cultivation.
6) Destitute women and distressed people will be provided investment for milch cows/poultry birds/ducks/goats etc. and other suitable off-farm activities for raising their supplementary income.
7) Persons having liabilities with other banks/institutions including defaulters will not be eligible for investment under the Scheme.

Sanction and Disbursement

On the basis of the list submitted by the Field Officers, the Investment Committee of the Branch carefully scrutinises the applications and sanction the investment at the Branch level. The Investment Committee consists of Manager, Project Officer and the Field Officer. After sanction of the investment the Branch complete documentation formalities and then disburse the amount with the help of the Investment Officer and Field Officer. In all the cases Branch must ensure strict adherence to the banking and Shariah norms.

a) SWIFT

Society for Worldwide Inter-Bank Financial Telecommunication (SWIFT) is a bank owned co-operative serving the financial community worldwide. The SWIFT

Transport Network (STN) is a dedicated global network for secure communication between SWIFT Customers.
SWIFT supports the financial data communication and processing needs of financial institutions, through a range of financial messaging services and value-added processing, as well as, access through the STN and interface and application software. In short SWIFT is a pioneer in the automation of the global financial industries.

Islami Bank Bangladesh Limited has introduced this SWIFT alliance entry system firstly in October 1999 and introduced SWIFT alliance access in October 2001. Presently all the 31 A/D branches are connected to SWIFT.

1) IBBL can diffuse its scope of investment through focusing Shariah concept regarding investments among the Bank officers; employer and the Clients by strong training, workshops and Clients get – together.
2) The authority of IBBL should exert pressure on Government bodies to run proper and sufficient application of Islamic banking laws in Bangladesh.
3) Practice amount of doubtful income declined substantially during the year as compared to the past few years, indicating more carefulness of the Management in complying with Shariah. As a result, idle money will be invested to increase potential profit of this Bank.
4) Inclusion of more subjects based on the Quran and Sunnah in the Training courses of the Islamic Banking System Training & Research Academy in order to develop human resources having morally.
5) This Bank should arrange a wide varieties of regular programs like “ISLAMIC JALSA” “OAAZ MAHFIL” “SEMINAR” “MOSQUE -BASED DISCUSSION” etc. about Islamic Banking Function countrywide to remove the negative impression about IBBL.
6) Arrangement of monthly /quarterly training courses /workshops for the clients selected by the Branches in order to promote Investment clients of the desired level.

4) IBBL should appoint a sufficient number of women employees to deal women entrepreneurs and professionals and understand their needs and thus create demand for investment

5) To fulfill the vision of “mass banking” this Bank should grants investment portfolio to new entrepreneurs /new businessmen new companies etc.

• To fulfill the vision of “mass banking” this Bank should grants investment portfolio to new entrepreneurs /new businessmen new companies etc.
• To gain success in the programs like “Poverty Alleviation and “Self Reliant” especially in rural areas, this bank should provides investment facilities on the basis of individual.
• The Bank should disburse total invested money at once to the clients to achieve full benefits of invested money.
• IBBL should give more emphasize on their marketing effort and try to increase their sales force.
• IBBL should appoint a Customer Relation Officer at branch level.
• IBBL should make their credit approval and monitoring system more customers friendly.
• IBBL should try to reduce their loan issuing and disbursement timing.
• IBBL should increase their profit rate on different deposit scheme.
• IBBL should try to attend different type of target customer.

• IBBL should introduce long-term credit scheme like different types of 5 years or ten years credit scheme.
• IBBL should Introduce Islami Credit Cards as soon as possible

• Maximum clients do not know about IBBL’s Loan schemes. They should carryout more promotional activities to make clients aware about their offers.
• It was observed that, IBBL is absent in TV, Print Media, Bill Boards, and Sponsorships etc. Bank should advertise about itself so that it can attract more clients. That will increase the business volume of the bank.
• To avoid bad debts IBBL should give more emphasize on Lending Risk Analysis (LRA) and try to conduct sensitivity analysis.
• IBBL should give highest attention on recovery of Bad Debts. This concerns the Image of The Bank, to the clients
• The shariah council should give emphasis on introduction of Mudaraba and Musharaka modes of investment under various investment schemes including Rural Development Scheme.

Most of the people in our country have a bad impression about IBBL’s operations regarding indirect generation of interest, which means no difference between investments of IBBL loan/credit/advance of conventional banks for this reason. They are not much interested to investment with IBBL because majority of our people have no proper knowledge about the activities of Islamic banking syatem as well as its investment mechanisms. IBBL through its steady progress and continuous success has, by how, earned the reputation of being one of the leading private sector banks of the country. The bank has shown steady progress in this important sector. Main items of import are machinery, garments, fabrics and accessories, ships for scrapping, rice, pharmaceuticals etc. where as main items of exports are jute products, readymade garments, leather, frozen fish, fertilizer etc. IBBL’s capital adequacy, deposits, reserves, earning per share, export, import and remittances are increasing day by day. So, no doubt IBBL is a growing profitable financial institution.

The future of Islamic banks hinges, by and large, on their ability to find a viable alternative to interest for financing all types of loans. They should recognize that their success in abolishing interest has been only partial and they have yet to go a long way in their search for a satisfactory alternative to interest. Simultaneously, Islamic banks need to improve their managerial capabilities by training their personnel in project appraisal, monitoring, evaluation and performance auditing. Moreover, the future of Islamic banks also depends on developing and putting into practice such accounting standards which provide timely and reliable information of the type that the Islamic banks would require for profit-sharing, rent-sharing or for cost-plus financing. These standards are yet to be developed. The Islamic banks would have to work hard to pursue their clients to accept these standards so that a reliable information base is established.