Allah has forbidden investing or earning on the basis of interest (Riba). It means interest (Riba) is harem according to Quran and Sunnah. So every sort of transaction must be free from Riba. But not only in Bangladesh but also over the world all the banks are working basing on interest. As it is Haram in Islam the Muslim scholars thought a plan to establish a banking system that is free from interest and will work on the basis of profit‑loss sharing. Then depending on this thought, it is decided to establish Islamic banks through the whole world to protect every one from this curse. So Islamic banks are working on the basis of Islamic Shariah that is free from interest.
Definition of an Islamic Bank:
An Islami Bank is a financial institution that operates with the objective to implement and materialize the economic and financial principles of Islam in the banking arena.
The Organization of Islamic Conference (OIC) defined an Islamic Bank as a financial institution whose statutes, rules and procedures expressly state its commitment to the principles of Islamic Shariah and to the banking of the receipt and payment of interest on any of its operation.
According to Islamic banking Act 1983 of Malaysia, and Islamic Bank is a company which carries on Islamic Banking Business Islamic Banding business means banking business whole aims and operations do not involve any element which is not approved by the religion Islam.
Characteristics of Islamic banks:
1. It is a financial institution.
2. It is a business institution.
3. It operates its business activities free from interest.
4. It is run according to rules and regulations formed and amended by Shariah Council.
5. Islamic bank means not business product but running business through money.
6. It is profit‑loss sharing business organization.
7. It provides loan as Quard Hashanah for social welfare.
8. It gives Zakat on its capital according to Islamic Shariah.
9. It leads all of its transaction according to Islamic law.
10. No form of work is done which is in Islamic etc.
Necessity of Islami Bank:
The objective of Islamic banking is not only to earn profit, but also to do good and welfare to the people. Islam upholds the concept that money, income and property belong to Allah and this wealth is to be used for the good of the society.
Islamic banks operate on Islamic principles of profit and loss sharing, strictly avoiding interest, which is the root of all exploitation and is responsible for large-scale inflation and unemployment.
Islami bank is committed to do away with disparity and establish justice in the economy, trade, commerce and industry- build socio-economy infrastructure and create employment opportunities.
Mission of the Bank:
To establish Islamic Banking through the introduction of a welfare oriented banking system and also ensure equity and justice in the field of all economic activities, achieve balanced growth and equitable development through diversified investment operations particularly in the priority sectors and less development areas of the county. To encourage socio-economic development and financial services to the low-income community particularly in the rural areas.
Vision of the Bank:
The vision of IBBL is to always strive to achieve superior financial performance, be considered a leading Islamic Bank by reputation and performance.
To establish and maintain the modern banking techniques, to ensure the soundness and development of the financial system based on Islamic principles and to become the strong and efficient organization with highly motivated professionals, working for the benefit of people, based upon accountability, transparency and integrity in order to ensure stability of financial system.
- Try to encourage savings in the form of direct investment
- Try to encourage investment particularly in projects, which are more likely to lead to higher employment.
Objective of the Bank:
- To conduct interest-free banking.
- To establish participatory banking instead of banking on debtor-creditor relationship.
- To invest through different modes permitted under Islamic Shariah.
- To accept deposits on profit-loss sharing basis.
- To establish a welfare-oriented banking system.
- To extend co-operation to the poor, the helpless and the low-income group for their economic development.
- To play a vital role in human development and employment generation.
- To contribute towards balanced growth and development of the country through investment operations particularly in the less developed areas.
- To contribute in achieving the ultimate goal of Islamic economic system.
Islami Bank Bangladesh limited: (IBBL)
Islami Bank Bangladesh limited was incorporation on 1.3.1983 and received its Banking License on 28.03.1983. IBBL started functioning on 30.03.1983. The authorized capital of the Bank is TK. 50.00 crores and paid up capital is TK 32.00 Crores.
Inspired by the success of Islami Bank Bangladesh Limited 5 other Islamic Banks namely- Al-Baraka Bank, Social Investment Bank Al-Arafat Islami Bank, Faisal Bank and Exim Bank have been established in Bangladesh. Prime Bank has established Islamic Branches.
Historical background of IBBL:
In August 1974, Bangladesh signed the Charter of Islamic Development Bank and committed itself to reorganize its economic and financial systems as per Islamic Shariah. In January 1981, the president of Bangladesh, the then, while addressing the 3rd Islamic Summit Conference held at Mecca and Taif suggested, “ The Islamic countries should develop a separate banking system of their own to facilitate their trade and commerce.”
This statement of the president 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 Banks 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 through out 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 in society (now reorganized as industrialist & Businessmen Association). The body concentrated mainly in mobilizing equity capital for the emerging Islamic Banks.
At last, the long drawn struggle, to establish an Islamic bank in Bangladesh becomes a reality. Islami Bank Bangladesh Limited was established in March 1983. In which 19 Bangladeshi nationals, 4 Bangladeshi institutions and 11 banks, financial institutions and government bodies of the middle east and Europe including IDB and eminent personalities of the kingdom Saudi Arabia joined hands to make the dream a reality.
Islami Bank Bangladesh Limited at a glance (As on 31st December, 2005):
1. Date of incorporation : 13.03.83
2. Date of receiving Banding license : 28.03.83
3. Date of incorporation of first branch (Local office Dhaka) : 30.03.83.
4. Formal inauguration : 12.08.83
5. Zone : 6
6. Authorized capital : 5000 million
7. Share of capital : a) Local-share holders : 42.12%
b) Foreign share holders : 57.88 %
8. Paid -up capital : 2820.00
9. Equity (31/6/2004) : tk. 6130.36 million
10. Branches :170
11. Deposit (30/6/2005) : tk. 107,779.50 million
12. Investment (30/6/2005) : tk. 179,465.76 million
13. Foreign Exchange Business (30/6/2005) : tk. 110059.00 million
14. Number of employee (30/6/2005) : 6068
15. Shareholder (30/6/2005) : 15741
Shariah Council: (SC)
Shariah Council of the bank is playing a vital role in guiding and supervising the implantation and compliance of Islamic Shariah principles in all activities of the bank since its very inception. The council, which enjoys a high status in the structure of the bank, consists of prominent ulema, reputed banker, renowned lawyer and eminent economists.
Members of the Shariah Council meet frequently and deliberate on different issues confronting the bank on Shariah matters. They also conduct Shariah inspection of branches regularly so as to ensure that the Shariah principles are implemented and complied with meticulously by the branches of the bank.
Objectives of Shariah Council:
- The functions of the council are to offer views and opinions on matters related to the bank from time to time. The council may require any paper document from the bank and examine the same to see whether it is according to see whether it is according to Islamic principles.
- The shariah council assists the Board of Directors by advising them on matters related to shariah.
- The opinion of the majority of members is taken as the opinion of the council provided that the said opinion is supported by at least three Muftis of the council.
- The council maintains its secretariat and a well-equipped library as the Head Office of the bank where it keeps proper records of all of its proceedings and decisions.
- The council elects a chairman and a secretary from amongst them. The chairman will normally preside over the meetings. In his absence the members present elect one of them to preside over the meetings.
- The council may whenever it thinks necessary, constitutes a sub committee to help the council.
- The council issues Shariah Certificate in the Annual Report of the bank.
Profit and Riba:
Profit : Profit on loss comes from investment in business activities. Profit is the result of ownership transaction and risk following the fours stages:
- Transformation through Bai /Buying Selling of goods.
- Risk of Transformation and Ownership.
- Other Condition of Shariah.
- Result-Profit on loss
Profit is the difference between the value of production and the cost of production which is Halal according to Islami Shariah
Riba/Interest : Interest come from loan, credit, advance of money. The word used by the Quran concerning “Interest” is Riba. The literal meanings of Riba are money increase, increase of anything or increment of anything from its original amount.
From the Islamic Shariah point of view, Riba is Haram.
Comparison between Riba and Profit:
|1. One goods-fungible||1. Two goods|
|2. Loan-Ownership retained||2. Ownership Exchanged|
|3. Excess-without exchange value||3. Equity of Value|
|4. No transformation||4. Transformation|
|5. No Risk of Transformation and ownership||5. Risk home|
|6. No relation with result imposed||6. Is the result|
|7. Certain||7. Uncertain|
Conventional banking Vs. Islamic banking:
Conventional banking is essentially based on the debtor creditor relationship between the depositors and the bank on the hand and between the borrowers and the bank on the other. Interest is considered to be the price of credit, reflecting the opportunity cost of money.
Islam on the other hand, considers a loan to be given or taken, free or charge, to meet any contingency. Thus in Islamic banking, the creditors should not take advantage of the borrower.
For the interest of the readers, the distinguishing features of the conventional banking and Islamic banking are shown in terms of a box diagram as shown below:
|1. The functions and operating modes of conventional banks are based on manmade principles.||1. The functions and operating m9odes of Islamic banks are based on the principles of Islamic Shariah.|
|2. The investor is assured of a pre determined rate of interest.||2. In contrast, it promotes risk sharing between provider of the capital (investor) and the user of the funds (entrepreneur).|
|3. It aims at maximizing profit without any restrictions.||3. It also aims at maximizing profit but subject to Shariah restrictions.|
|4. It does not deal with zakat.||4. In the modern Islamic banking system, it has become one of the service oriented functions of the Islamic banks to collect and distribute zakat.|
|5. Lending money and getting it back with interest is the fundamental function of the conventional banks.||5. Participation in partnership business is the fundamental function of the Islamic banks.|
|6. Its scope of activities is narrower when compared with Islamic banks.||6. Its scope of activities is wider when compared with a conventional bank. It is in effect a multi purpose institution.|
|7. It can charge additional money (compound rate of interest) in case of defaulters.||7. The Islamic banks have no provision to charge any extra money from the defaulters.|
|8. In it very often banks own interest becomes prominent. It makes no effort to ensure growth with equity.||8. It gives due importance to the public interest. Its ultimate aim is to ensure growth with equity.|
|9. For interest based commercial banks, borrowing from the money market is relatively easier.||9. For the Islamic banks, it is comparatively difficult to borrow money from the money market.|
|10. Since income from the advances is fixed, it gives little importance to developing expertise in project appraisal and evaluations.||10. Since it shares profit and loss, the Islamic banks pay greater attention to developing project appraisal and evaluations.|
|11. The conventional banks give grater emphasis on credit worthiness of the clients.||11. The Islamic banks, on the other hand give grater emphasis on the viability of the projects.|
|12. The status of a conventional bank, in relation to its clients, is that of creditor and debtors.||12. The status of Islamic bank in relation to its clients is that of partners, investors and trader.|
|13. A conventional bank has to guarantee all its deposits.||13. Strictly speaking and Islamic bank cannot do that.|
IBBL’s World Rating:
As per Banker’s Almanac (January 1999 edition) published by the Reed Business information, Windsor Court, England, IBBL’s world rank is 1902 among 4500 banks selected by them. IBBL’s country rank is 5 among 39 banks as per ratings, made by the above Almanac on the basis of IBBL’s financial statements of the year 1997.
World ranking of IBBL amongst top 3000 International Banks:
Source: The Bankers Almanac: World Ranking Road Business Information, U.K.