Different Modes of Investment of IBBL
Subject: Finance | Topics:

Chapter One



Bangladesh is one of the largest Muslim countries in the world. The people of this country are deeply committed to Islamic way of life as enshrined in the Holy Quran & the Sunnah. Naturally, it remains a deep cry in their hearts to fashion & design their economic lives in accordance with the precepts of Islam.

After the surrender of the Pakistani forces on 16th December 1971, the government of the Peoples Republic of Bangladesh formally took over the charge of the administration of the territories now constitute Bangladesh. In order to rehabilitate the war devastated banking system of Bangladesh, the government promulgated a law called Bangladesh Bank (temporary) Order, 1971(Acting Presidents Order No 2 of 1971). By this order the State Bank of Pakistan was declared as Bangladesh Bank and the offices, branches and assets of the said State Bank was declared to be deemed as offices, branches and assets of Bangladesh Bank. It was also declared by the aforesaid Order that all currency notes and coins issued by the said State Bank and government of Pakistan and were in circulation in Bangladesh shall be deemed to have issued by the Bangladesh Bank. By the steps stated above, the banking system of Bangladesh started with a legal shape.

The number of banks in all now stands at 49 in Bangladesh. Out of the 49 banks, four are Nationalized Commercial Banks (NCBs), 28 local private commercial banks, 12 foreign banks and the rest five are Development Financial Institutions (DFIs). Sonali Bank is the largest among the NCBs while Bank Asia is leading in the private ones. Among the 12 foreign banks, Standard Chartered and HSBC has become the largest in the country. Besides the scheduled banks, Samabai (Cooperative) Bank, Ansar-VDP Bank, Karmasansthan (Employment) Bank and Grameen bank are functioning in the financial sector. Bangladesh Bank (BB) regulates and supervises the activities of all banks.

Private sector banks started functioning during the year 1983-84 with the objective of government policy to make sure effective and meaningful participation of the private sector in the overall national economy.

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 of financial transaction of this bank. This bank is committed to establish socio-economic justice. Islami Bank Bangladesh Limited is the first interest free commercial bank in South-East Asia. The bank has opened 176 branches covering important commercial areas.

Islami Bank Bangladesh is a financial institution whose status, rules and procedures expressly state its commitment to the principle of Islamic Shariah. Consequently 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. In this report, I undertake microscopic analysis mainly on “Different Investment Modes Of IBBL”.

Origin Of The Report

This report is based on an internship program. IBTRA arranges internship program to gather practical knowledge about banking activities followed by IBBL for University students as Universities conducted with different organization after the completion of theoretical courses of program of Bachelor of Business Administration (BBA). Each intern must carry out a specific project, which is assigned by the IBTRA. Consequently a report based on the projects is to be submitted to the authority of IBTRA. We select Islamic Bank Bangladesh Limited (IBBL) for our internship & since then I have started our realistic orientation program in General Banking, Investment & foreign exchange department. But we have prepared our project paper on investment as it is assigned by IBTRA. Hence we were placed in Local Branch of Islami Bank Bangladesh Limited from May 3 to June 24, 2007.

History Behind  The Report

For Dissertation each student has to prepare a report on their choice. According to this requirement, We Have already completed our Dissertation report on the Investment Mechanisms of Islami Bank Bangladesh Ltd. Under internship program each student has to prepare a report on the particular topic related with the organization. According to this requirement, I have already completed our internship on the job at IBBL, Farmgate Branch On the basis of our practical experience as well as theoretical knowledge, I have completed the report regarding , “Different Investment Modes Of IBBL.”

The main focus of our study is to analyze the investment strategy and its strength and weakness.  Islami Bank does not lend money or issue securities with fixed interest. Instead it finance in various schemes approved by Shariah Board to achieve its goal.

 Objectives And Philosophy Of The Study

The main objective of the study is to fulfill the requirement of BBA program as well as to gain practical exposures about investment of IBBL. The practical orientation gives us a chance to Co-ordinate out theoretical knowledge with the practical experience. In line with the broad objective, the detailed objectives of the study may be spelled out as follows:

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 identify the problems related to investments faced by IBBL.

To recommend actions that may be necessary to redesign the investments of IBBL.

Special Features Of The Bank

Islami Bank Bangladesh Limited (IBBL) was incorporated on 13.03.1983 as a public company with limited liability under the companies act, 1913. The bank started functioning with effect from 30.03.1983 as the first Shariah based interest-free bank in South-East Asia.

The bank is committed to run all its activities as per Islamic Shariah. IBBL through its steady progress and continuous success has, by now, earned the reputation of being one of the leading private sector banks of the country. The distinguishing features of IBBL are as under:

All it’s activities are conducted on interest-free system according to Islamic Shariah.

Investment is made through different modes permitted under Islamic Shariah.

Investment-income of the bank is shared with the Mudaraba depositors according to a ratio to ensure a reasonably fair rate of return on their deposits.

Its aims are to introduce a welfare-oriented banking system and also to establish equity and justice in the field of all economic activities.

It extends Socio-economic and financial services to the poor, helpless and low-income group of the people for their economic upliftment particularly in the rural areas.

It plays a vital role in human resource development and employment generation particularly for the unemployed youths.

Its aim is to achieve balance growth & equitable development of the country through diversified investment operations particularly in the priority sectors and in the less developed areas.

Justification Of The Study

In our economy, there are mainly three types of schedule commercial banks are in operation. They are Nationalized Commercial Banks, Local Private Commercial Banks and Foreign Private Commercial Banks. Islami Bank has discovered a new horizon in the field of banking area, which offers different General Banking, Investments and Foreign Exchange banking system. So I have decided to study on the topic, “Different Investment Modes Of IBBL”, Because the Internship program of the university is an integral part of the BBA program. So it is obligatory to undertake such task by the students who desirous to complete and successfully end-up their BBA degree. This also provides an opportunity to the students to minimize the gap between theoretical and practical knowledge. During the internship program the teachers of the department are attached to actively and constantly guide the students. Students are required to work on a specific topic based on their theoretical and practical knowledge acquired during the period of the internship program and then submits it to the teacher. That is why I have prepared this report.

 Rationale Of The Study

There are three types of schedule commercial banks are in operation in our economy. They are Nationalized Commercial Banks, Local Private Commercial Banks and Foreign Private Commercial Banks. Islami Bank has discovered a new horizon in the field of banking area, which offers different General Banking, Investments and Foreign Exchange banking system. So, I have decided to study on the topic, “Different Investment Modes Of IBBL & Difference With That Of Conventional Banking”, because the Internship program of the university is an integral part of the BBA program. So it is obligatory to undertake such task by the students who desirous to complete and successfully end-up their BBA degree.

This also provides an opportunity to the students to minimize the gap between theoretical and practical knowledge. During the Dissertation program the teachers of the department are attached to actively and constantly guide the students. Students are required to work on a specific topic based on their theoretical and practical knowledge acquired during the period of the internship program and then submit it to the teacher. That is why we have prepared this report.

Methodology Of The Study

For carrying out this project paper I had to study the actual banking operations of IBBL.

In order to carry out this study, two sources of data and information have been used:

 Sources of Data

Both the primary and secondary data had collected. Secondary data collected from prior records of :-

Primary Data:

Primary data are root level data and are collected without any correction. These data were collected by

i) Face to face conversation with the employees

ii) Interviewing officers and staffs.

iii) Sharing practical knowledge of officials.

iv) Relevant file study provided by the officers concerned.

v) In-depth study of selected cases.

vi) By observing various organizational procedures, structures.

vii) Face to Face conversation with clients.

viii) Interviewing customer of credit department with structured questionnaires

Secondary Data

Secondary data were collected from the following two sources are:

Internal Sources

i)  Bank’s Annual Report 2008,2009,2010

ii) Group Instruction Manual & Business Instruction Manual

iii) Prior research report

iv) Any information regarding the Banking sector

External Sources

i) Different books and periodicals related to the banking sector

ii) Newspapers

Significance  Of The Report

 The prime reason of this study is to become familiar with the practical business world and to attain practical knowledge about the Banking and Corporate world, which is much essential for each and every student to meet the extreme growing challenges in job market. It is also known to all of us that there is no alternative of practical knowledge and the practical knowledge is much more durable and useful than the theoretical knowledge. This study will help us to get a true picture of the practical business world, particularly of banking business and also to attain practical knowledge on the various spheres of banking business. So this study is of paramount importance for each and every student regardless of his/her study area or discipline.

Scope Of The Report

 The scope of this paper is limited to the organizational structure, background, and objectives, functions, and investment performance of IBBL as a whole. The scope is also limited to different investment schemes, modes, mechanism, investment proposal appraisal procedures, monitoring and documentation of IBBL.

Limitations Of The Study

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

Lack of time

The time period of this study is very short. I had only 8 weeks in our hand to complete this report, which was not enough. So I could not go in depth of the study. Most of the times the officials were busy and were not able to give us much time.

 Insufficient data

 Some desired information could not be collected due to confidentiality of business.

 Lack of monitory support

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

Other limitation

As we are newcomer, there is a lack of previous experience in this concern. And many practical matters have been written from our own observation that may vary from person to person.


Chapter Two


An overview of Islami Bank Bangladesh Limited (IBBL)

We are very familiar with the interest based banking system and its mechanism. At the time of independence Bangladesh inherited an interest-based banking system introduced by the British government during the colonial period. At present three nationalized banks, five specialized banks, sixteen foreign banks and some private banks are operating in the financial market of Bangladesh. But the Islamic banking in Bangladesh dates back to 1983 when Islamic bank Bangladesh Limited (IBBL) was established with a view to conducting its banking activities based on the principle of Islamic Bank shariah. In 1987 Oriental Bank (Al-Baraka Bank) Bangladesh Limited the second Islamic Bank was established. There are seven Islamic Banks in Bangladesh. These are:

●Islamic Bank Bangladesh Limited (1983)

●Social Investment Bank Limited (1995)

●Al Faisal Bank Limited (1995),

●Al-Arafah Islamic Bank Limited (1995)

●Shahajalal Bank Ltd.

●Exim Bank Ltd .

●Bank Al Falah

Interest based traditional banks with Islami Banking branch

●Southeast Bank Ltd.

●Prime Bank Ltd.

●Dhaka Bank Ltd.

●The City Bank Ltd.

●Premier Bank Ltd

●Arab Bangladesh Bank Ltd.

Many others banks are trying to open Islami Windows

Background  Of The Organization

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, Late President Ziaur Rahman while addressing the 3rd Islamic Summit Conference held at Holy Makkah 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 1980, 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 Bankers’ 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.

The professional activities were reinforced by number of Muslim entrepreneurs working under the aegis of the then Muslim Businessmen Society. 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 became a reality and Islami 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.

 Aims and Objectives of IBBL

To conduct interest-free banking system in the financial market.

To establish a participatory relationship with the customer & to eliminate the idea of the debtor – creditor relationship of the traditional banks.

To invest on profit and risk sharing basis.

To accept deposits on Mudaraba & Al-Wadeah 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 upliftment

To play a vital role in human development and employment generation

To contribute in achieving the ultimate goal of Islamic economic system

To contribute towards balanced growth and development of the country through investment operations particularly in the less developed areas.

To develop morals among the people & to establish the shariah in the field of trade & commerce.

To establish justice in trade & commerce in the country.

 Good Performance Is Always Rewarded

The global finance, a reputed USA based quarterly financial magazine, awarded IBBL as the best Islamic Financial Institution for the year 2008.

Institute of Cost and Management Accountants of Bangladesh (ICMAB) awarded IBBL as the ICMAB National Best Corporate Award 2007 (First Position, Local Bank) and ICMAB Best Corporate Performance Award-2008 (Second Position, Private Commercial Bank).

Credit Rating Information and Services Ltd. (CRISL) rated IBBL AA (High Safety) for long term for the years 2006, 2007, and 2008 and ST-1 (Highest Grade) for short term for the years 2004, 2005, 2006 2007, and 2008.

The Institute of Chartered Accountant of Bangladesh (ICAB) awarded IBBL with the Certificate of Appreciation in the best published accounts and reports for the year 2001, and Certificate of Merit for the year 2008.

Bankers’ Forum awarded IBBL as the Best Bank for Corporate Social Responsibilities for 2008.

  Mission and Vision of IBBL

◙ Vision of IBBL:

Vision of IBBL is always to strive to achieve superior financial performance, be co considered a leading Islami Bank by reputation and performance.

● Goal of IBBL is to establish and maintain the modern banking techniques, to ensure the soundness and development if the financial system based on Islami 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 the stability of financial system.

● IBBL will try to encourage saving in the form of direct investment.

● IBBL will also try to encourage investment particularly in projects, which are more likely to higher employment.

◙ Mission of IBBL:

To establish Islami Banking through the introduction of a welfare oriented banking system and also ensure equality and justice in the field of all economic activities, achieve balanced growth and equitable development through diversified investment operations particularly in the priority sectors and less development areas of the country. To encourage socio-economic upliftment and financial services to the low-income community particularly in the rural areas.

Role of 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 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 have also expressed their intention to introduce Islamic Banking.

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 176 branches located at important centers all over the country and spontaneous acceptance of those products by the people proves the superiority of Islamic by the people proves the superiority of Islamic banking.

IBBL’s market share of deposit investment and ancillary business is steadily increasing IBBL, through still a tiny bank, handless more than 10% 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 found and earning profit.

Investment in industrial sector occupies nearly 49.19% 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 group to introduce 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.

 Goal Of The Organizatin

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 the stability of financial systems.

  Features of IBBL:

The operation of Islamic Bank Bangladesh limited can be divided into three (3) major categories:

1. General Banking: it includes: –

a. Mobilization of deposits

b. Receipts and payment of cash.

c. Handling transfer transaction.

d. Operations of clearing house

e. Maintenance of accounts with Bangladesh bank and other bank.

f. Collection of cheque and bill.

g. Issue and payment of Demand Draft, telegraphic transfer and payment order.

h. Executing customers standing instructions.

i. Maintenance of safe deposit lockers.

j. Maintenance of internal accounts of the bank.

While doing all the above noted work IBBL issue cheques-book, Deposit account operating form, SS card, Ledgers, Cash book, Deposit account ledgers, preparation statement of accounts, Pass book, Balance of different accounts and calculates profits.

IBBL offers to open the following account to the depositors:

1. Al-Wadeeah Current Account.

2. Mudaraba Savings Account.

3. Mudaraba term deposit Account. (3 month / 6 month / 12 month / 36 months term)

4. Mudaraba Special notice Account

5. Mudaraba Hajj Savings Account (1 year to 25 year term)

6. Mudaraba Special savings (pension) Account (5 year to 10 year term)

7. Mudaraba Savings bond Scheme (5 year & 8 year term)

8. Mudaraba Foreign Currency Deposite Account.

9. Mudaraba Monthly Deposite Account.

10. Mudaraba Moharana Account.

11.Mudarba waqf cash Deposit Account (MWCDA)

2. Investment: 

IBBL invests its money in various sectors of the economy through different modes permitted by shariah and approved by Bangladesh Bank. The modes of investment are as follows:


  • Bai-Murabaha
  • Bai- Muzzal
  • Bai-Salam
  • Istishna
  • Leasing, Ijara,
  • Hire Purchase (HP), Hire Purchase under shirkatul melk (HPSM)
  • Shirkat Mechanism(Share)
  • Musaraka
  • Mudaraba

3. Foreign Exchange Business:

Foreign Exchange Business plays a vital role in providing substantial revenue in the bank income pool. Like all modern Banks IBBL operates in the area of the foreign Exchange business. IBBL performs the following tasks:

  • Opening letter of credit (LC) against commission for importing industrial, agricultural and other permissible items under Islamic Shariah and Import policy.
  • Opening letter of credit on the principle of Mudaraba sale, on the principle of Musharaka sale and under wage earner scheme.
  • Handling of export/import document.
  • Negotiation of export / import document when discrepancy occurs.
  • Financing in import under MPI (Mudaraba Post Import)
  • Financing to export on profit or loss sharing.
  • Handling Inward and outward remittance.

4. Other activities

The IBBL performs the following task for the welfare of the society:

  • Income generating scheme for the unemployed youth of the nation.
  • Monorom  sale center for marketing homemade garments, handicrafts and other items.
  • Education scheme for assisting poor scholar student to case and help them to continue their study.
  • Health scheme for fulfillment of health needs of rural people.
  • Islamic bank hospital was established to extend first hand modern and contemporary medical service to the people on non-profit business.
  • Humanitarian assistance is being provided to the poor, families affected by river erosion and for marriage of poor girls.
  • Energy relief operations are provided to the people affected by natural calamities.

5. Welfare Oriented Special Investment Schemes

  • Household Durables Scheme
  • Housing Investment Scheme
  • Real Estate Investment Scheme
  • Transport Investment Scheme
  • Car Investment Scheme
  • Investment Scheme for Doctors
  • Small Business Investment Scheme
  • Agriculture Implements Investment Scheme
  • Rural Development Scheme
  • Micro Industries Investment Scheme
  • Women Entrepreneurs Investment Scheme

6. Sectors under SME Investments

  • Manufacturing
  • Trading
  • Service

7. ATM Services

  • Cash Withdrawal
  • Fund Transfer
  • Mini Statement of Accounts
  • Balance Enquiry
  • Payment of Utility Bills (Electricity, Water, Phone and Gas etc.)

8. Other Banking Value Added Services

The Bank issues Payment Orders

The Bank co-operates to remit money from one place to another on the basis of commission within the country through Demand Draft (DD) and Telegraphic Transfer (TT).

Locker Service is available in selected Branches to preserve valuable documents and materials

The Bank gives counseling on different issues

Online Banking

SMS Banking


REUTER, etc.

9. Foreign Remittance

There are 16 (sixteen) Foreign Representatives of IBBL in 5 (five) Countries to serve expatriate customers to encourage and enhance Foreign Remittance.

10. Treasury Activities

Dealing Room Operation.

11. Special Services through Islami Bank Foundation

  • IslamiBankHospital
  • IslamiBankMedicalCollege
  • IslamiBankCommunityHospital
  • Islami Bank Nursing Training Institute
  • Islami Bank Institute of Health Technology
  • Islami Bank Homeopathic Clinic
  • Monorom: Islami Bank Crafts & Fashion
  • Islami Bank Service Centre
  • Islami Bank Institute of Technology
  • IslamiBankInternationalSchool and College
  • IslamiBankModelSchool
  • Islami Bank Mohila Madrasah
  • Bangladesh Sangskritic Kendra
  • Distressed Women Rehabilitation Centre

12. Training Services

International: Training to Foreigners on Islamic Banking

National: Training to others on Islamic Banking

Islami Banking Deploma

Strategies  Of  IBBL:

The strategies on which IBBL is working are as follows:

Broad-based economic well-being with full employment and optimum rate of economic growth

Socio-economic justice and equitable distribution of income and wealth

Stability in the value of money to enable the medium of exchange to be reliable unit of account, a just standard of deferred payments and a stable store of value

Generation of adequate savings and their productive mobilization within a framework which is consistent with the above goals

Effective rendering of all services normally expected from the banking system

 The Board of Directors:

The Board of Directors consists of 14 non executive members including 1 Independent Director. The number of Board of members is within the maximum limit set by the central bank. The Board is composed of experienced members with diverse professional experiences such as business, administration, banking & finance, accounting, general management, diplomacy, government services, engineering and fund management which made the Board very efficient and balanced in deciding and directing on the various issues of the bank. The Board members are independent who express their views and opinions free from any influence. The Directors are also independent from management, business/other relationship of the bank that could materially interfere the activities of the bank.  There is also a clear demarcation of duties and responsibilities between the Board and management. While the Board is responsible for formulating the board policy framework within which the bank is operating, the management is accountable for the execution of the policies and attainment of the bank’s objectives. The Board exercises independent oversight on the affairs of management.


The Board has two standing committees viz. Executive Committee and Audit Committee. These Committees operate within clear terms of reference.

The Executive Committee

The executive Committee consists of 6 members and entrusted with the task of policy making and taking important and strategic decisions as authorized by the Board within the norms set by the Bangladesh Bank.

The Audit Committee

The Audit Committee formed by the Board of Directors as per instruction of Bangladesh Bank consists of 3 members and is entrusted with, among others, the task of exercising their duties & responsibilities with regard to:

Internal Control

Disclosure of Financial Report

Internal Audit

External Audit and

Compliance of existing laws and regulations

 The Management Committee

The Management Committee of the bank comprises of 17 top level executives, headed by the Managing Director (CEO) of the bank. The Committee with financial, administrative and business discretionary power delegated by the Board is mainly responsible for implementation of the policies and guidelines approved by the Board. The Management Committee thoroughly scrutinizes the issues before placing to the Executive Committee/Board. The Management Committee thoroughly evaluates the performance of the bank, takes strategic action plan to achieve various targets of the bank set by the Board of Directors.

Asset-Liability Committee (ALCO)

The asset liability management (ALCO) of IBBL is comprised of 18 members from the top management which meets once in a month to review the liquidity position of the bank, maturity grouping of assets and liabilities, Deposits and Investment pricing and liquidity contingency plan in order to manage the balance sheet risk in a better way. The ALCO is entrusted with the responsibility of ensuring the bank’s sufficient liquidity at all times to meet its obligations when becomes due without compromising the earning potential of the bank. In every ALCO meeting, the Committee reviews actions taken in previous ALCO meeting, economic and market status and outlook, liquidity risk related to balance sheet, profit rate structure etc. Special ALCO meeting is arranged as and when any contingent situation arises.

Islami Bank Bangladesh Limited At A Glance

(As on June 30, 2010 )

Date of Incorporation13th March 1983
Inauguration of 1st Branch
(Local office, Dhaka)
30th March 1983
Formal Inauguration12th August 1983
Share of Capital
Local Shareholders42.77%
Foreign Shareholders58.23%
Authorized CapitalTk. 10,000.00 million
Paid-up CapitalTk. 7,413.00 million
DepositsTk. 265,193.00 million
Investments (including Investment in Shares)Tk. 255,178.00 million
Foreign Exchange BusinessTk. 277,739.00 million
Number of Branches258 ( Now )
Number of SME Service Centers30 ( Now )
Number of Shareholders52164
Profit7066 Million Dollar











Source: Islami Bank 25 years of progress 2010

  Number Of Employee( Farmgate Branch)

Total   Employee                                 : 62

SVP                                                        : 1

AVP                                                        : 1

Senior principles officer                      : 4

Pr. Officer                                              : 4

Sr. Officer                                              : 14

Officer                                                   : 11

Pro. Off.                                                 : 2

A.O.Gr.                                                   : 11

S.G                                                          : 3

MCG                                                      : 6

GG                                                          : 4

Cleaner                                                  : 1

There are 62 employee works in the IBBL at Farmgate branch. Vice President in the top level. After vice president, the position is second officer than the position is principles officer.

Organogram Of The Branch:

Sourse: Office document of IBBL at Farmgate Branch

Shariah Council of IBBL

 Profile of Council Members:

The Shariah Council of Islamic Bank generally consists of experts from the following four areas:

1. Fuqua: Persons representing this group must be well versed in the Quran, Sunnah and fully conversant with the opinion of all schools of Islami thought and Islami law and jurisprudence. They must view Islam as a total way of life and a living religion.

2. Banker: There must be a member who is fully conversant with banking law and practices and has practical experiences in Banking business including foreign trade.

3. Economist: A member from this group need not necessarily be an Islami economist to start with. But if he is an Islami Economist it is an added advantage. What is important is that he must be really proficient in modern economies with an in depth study of the community, which a bank is going to solve. He must have up to date knowledge in the development of the contemporary world.

4. Lawyer: A member representing this group should be a successful practitioner lawyer. He must be proficient in commercial law including company law. In consultation with the Fuqaha and Economist members of the council, he should be able to draft such innovating contracts, which will have the sanction of Islami principles and a banking law of the land.

 Objective of Shariah Council:                                   

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 Mufti of the council.

The council maintains its secretariat & a well-equipment library as the Head Office of the bank where it keeps proper records of all of its proceeding & decisions.

The council elects a chairman & 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.


Till 2011, out of total 258 branches (including 30 SME/Agricultural Branches), 114 are Urban Branches and 117 are Rural Branches which are the highest number of rural branches among the first generation Commercial Banks.

 IBBL’s World Rating:

As per Banker’s Almanac (January 2009 edition) published by the Reed Business information, Windsor Court, England, IBBL’s World rank is 1st among 4500 banks selected by them. IBBL’s country rank is 1stamong 39 banks as per ratings, made by the above Almanac on the basis of IBBL’s financial statements of the year 2009.

 Successful Achievements of IBBL:

IBBL is the pioneer institution for introduction of Islamic Banking in Bangladesh. The success of IBBL has embedded other sponsors at home and abroad to establish Islamic Banking in Bangladesh. Several existing and proposed traditional Banks have also expressed their intention to introduced Islamic Banking. Achievements of IBBL can be given as under:

 IBBL has successfully mobilized deposits for a section of people hither to before do any deposit with interest-based Banks.

 The Islamic Banking products, which are offered by IBBL through its 144 branches, located at important centers all over the country and spontaneous acceptance of those products by the people proves the superiority of Islamic BankingIBBL’s market share of deposit, investment and ancillary business is steadily increasingly.

 IBBL, through still a tiny bank, handles more than 10 of country’s export and import.

 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 25 of IBBL’s investment portfolio. This unique example of industrial finance by a commercial Bank.

 More than 115000 workers are employed in the industrial projects financed by IBBL. IBBL has thus made significant contribution to solving unemployment problem of country.

 IBBL has earned reputation in the country as a corruption free institution.

 IBBL has introduced several other welfare oriented investment schemes, such as small transport investment scheme, household Durable investment scheme, Housing investment scheme etc.

IBBL launched a rural development scheme for overall development of the rural people.

 At the initiative of IBBL, several universities in Bangladesh have introduced course on Islamic Banking and Finance.

 IBBL has been continuously persuasion the Government to allow formation of more Islamic Insurance Company.

 Under the leadership of IBBL, Bangladesh Association of Banks (BAB) has been formed.

 This is platform to ventilate the standpoints on banking issues of the private sector banks.

 IBBL has taken initiative to form on Association of Islamic Banks in Bangladesh for furtherance of the cause of Islamic Banking.

Chapter Three


Overall Financial Performance of IBBL

To judge and evaluate the performance of the financial institutions, the best way is to evaluate them by their financial and operational activities. There are several ratio analyses which show the operating trends of these banks. Based on this evaluation and examination I have interpreted the results and find out the actual condition IBBL.

Net Profit Before Tax

Table-3.1                                                                                                                In Million

Net Profit Before Tax




IBBL maintains the increasing trend in profit before tax. Its profit before tax position is impressive. It was in increasing trend  from 2005 to 2009. The graph showed that the amount increased dramatically than the previous year because of maximum profit generation by the bank. In 2005 it was TK. 2162.42 million and in 2009 it goes 6517.66 million. That means this bank’s operating income is increasing.

Net Profit After Tax

Table-3.2                                                                                                                            In Million

Net Profit After Tax




Profit after tax shows the net income of any organization, we will get it after deducting all expenses such as interest and tax expenses. This is also called common shareholders income. In case of profit after tax IBBL shows increasing trend, which is very positive side for the organization. Profit after tax of IBBL is increasing that means bank profitability position is good. Year 2005 profit after tax was Tk 2162.42 million and in 2009 it was Tk 6517.66 million. The total amount of profit is growing every year. The profit was almost doubled in 2008 than that of 2007.

Export and Import and Remittance




In 2009 remittance collection has reached the peak. Every year the remittance collection is growing at an increasing rate. And in every sector IBBL is now in the

first position. Compared to any other banks IBBL contributes a lot in enriching foreign currency reserve.

Classified Investment to General Investment

Table-3.4                                                                                                                In Million

Classified Investment to General Investment




Classified investment to general investment should be lower which shows good sign for the bank. This means the bank adopts better credit policy and its earning trend will increase. In IBBL this ratio is significantly lower which is positive. The trend of the ratio shows decreasing movement. Specially after 2006 the ratio is decreasing.

Return on Equity


Return on Equity





This ratio tells us the earning power on shareholders book value invested and is frequently used in comparing two or more firms in an industry. A high return on equity often reflects the firm’s acceptances of strong investment opportunities and effective expense management. However if the firm has chosen to employ a level of debt that is high by industry standard, a high ROE might simply be the result of assuming excusive financial risk. The ROE performance of IBBL maintained decreasing trend from 2005 to 2007. In 2008 it increased to 19.02% which is pretty higher than the previous year. And again in 2009 the ratio becomes lower which is 16.93%.

 Return on Assets


Return on Assets1.00%1.03%0.84%1.27%1.34%



ROA indicates a firm’s ability to efficiently allocate and manage its resources but (unlike return on equity) ignores the firm’s liabilities. An indicator of how profitable a company is relative to its total assets. ROA gives an idea as to how efficient management is at using its assets to generate earnings. Sometimes this is referred to as “return on investment”. The ROA position of the bank is close to industry avg. and in 2009 it is 1.34% and always shows consistency.

Earning Per Share


Earning Per Share





The term earnings per share (EPS) represents the portion of a company’s earnings, net of taxes and preferred stock dividends, that is allocated to each share of common stock. The formula of earning per share is total earnings divided by the number of shares outstanding. Companies often use a weighted average of shares outstanding over the reporting term. The graphical analysis stated that Earning per share of IBBL declined significantly in year 2006 and 2007. In 2005 it was TK. 48.76 and in 2009 it is 55.10 which is god enough.

Price Earning Ratio


Price Earning Ratio





P/E ratio is most valuable for companies within the same industry. Value investors have long considered the price earnings ratio [p/e ratio] one of the single most important numbers available when evaluating a company’s stock price. The p/e ratio is how much money you are paying for TK. 1 of the company’s earnings. For this bank the results are in increasing trend though it dropped in 2008 because of unstable share market. Price earning ratio should not increase more than 20%.

Capital Adequacy Ratio


Capital Adequacy Ratio





It is a measurement of a bank’s capital adequacy against its requirement. It is expressed as a percentage of a bank’s risk weighted credit exposures. This ratio is used to protect depositors and promote the stability and efficiency of financial systems in the banking sector around the world. The good news for the depositors is that the capital adequacy ratio of IBBL is in increasing trend. It was slightly dropped in 2006 but that was insignificant. In fact the bank is maintaining its trend of increasing capital and reducing depositors’ risks.

Chapter Four


Definition of Investment:      

In general, Investment is the action of deploying funds for legal purposes with the intention and expectation that they will earn a positive return for the owner. Funds may be invested in either real assets or financial assets.

When resources are used for purchasing fixed and current assets in a production process or for a trading purpose, then it can be termed as real investment. The establishment of a factory or the purchase of raw materials and machinery for production purposes are examples in point.

On the other hand, the purchase of a legal right to receive income in the form of capital gains or dividends would be indicative of financial investments. Specific examples of financial investments are: deposits of money in a bank account, the purchase of Mudaraba Savings Bonds or stock in a company.

In Islamic Banking system, Investment refers to the action of deploying or disbursing funds for different purposes approved by the Islamic Shariah on profit/loss sharing basis for a certain period of time with an expectation that they will generate a positive return for the owner. Islamic Banks as per Shariah do not provide direct cash investment facilities to its clients rather they provide investment facilities through the trading of goods and this distinguishing feature of the Islamic Banking system has differentiated the investment process of the Islamic Bank from that of the conventional Banks. (Source: www.islamibankbd.com)

 General Investment versus Financial Investment:

When money is deposited with an Islamic Bank, the bank, in turn, makes investments in different forms approved by the Islamic Shariah with the intention to earn a profit. A particular Islamic Bank (such as Islami Bank Bangladesh Ltd.) usually uses its accumulated funds in the following two major sources of investment:

General Investment: refers to the financial accommodations offered by the Islamic Banks for definite purposes to the deficit units of the economy.

Financial Investment: refers to the purchase of financial securities (such as shares & bonds) of other business institutions, which is generally known as Investment in shares & bonds.

 Classification of Investment   

On the Basis of the Use

Commercial: Investment for purchase & sale of goods for trading on commercial basis.

Industrial: Investment for purchase of machineries, equipments, raw materials, etc. for an industrial undertaking.

Agricultural: Investment for purchase of agricultural equipments, seeds, fertilizer etc.

Import: Investment for import of goods from abroad. Islamic Banks provides investment in the name of MPI or Murabaha Post Import.

Export: Investment for export of goods to abroad. Islamic Bank usually makes investment in the name of Musharaka Pre-shipment Finance.

Consumption: Investment for purchase of consumption goods under Murabaha or Bai-Muajjal Mode.

Miscellaneous scheme: Investment under any specific scheme, such as doctors Scheme, Transport Scheme etc.

On the Basis of Term

Short Term: Investment up-to 12 months.

Medium Term: Investment for the period of more than 1 year but less than 5 years.

Long-Term: Investment for more than 5 years.

On the Basis of Security

Unsecured: Investment based on the investment client’s personal guarantee only.

Secured: Investment based on the primary and/or collateral security having equal market value of investment abreast with personal guarantee.

 Importance of Investment

Like other banks Islami Bank makes investment from the deposited money and pays a part of part of profit there on to the deposit holders and retains the remaining portion as its own profit. If the bank fails to invest, it along with the deposit holders will be deprived of the profit. In such a situation, if the deposit holders withdraw their deposited money, the bank will lose its investment capacity and there by its existence will be vanished. Investment is, therefore, the lifeblood of a bank. By making more investment in profitable areas a bank can progress rapidly. A bank usually makes investment 70 to 75 percent from the deposited money. Out of total deposits the bank is bound to keep 4 percent as cash and 16 percent as security in Bangladesh Bank. The rest amount is kept for regular transactions.

  Islamic Modes of Finance/Investment:

At the beginning it is better to give a clear definition of “Islamic Modes of Finance” as the Islami Bank Bangladesh Limited follows the Islamic rules and regulations in conducting the Banking operations. The word “Modes” literally means “methods”, or in other words, it refers to “systematic and detailed rules, stipulations and steps to be followed for accomplishing a specific thing”. The thing that needs to be accomplished in this context is, however, the subject matter of each of the said modes, i.e. any of the different types of investment activities (trade, leasing, real estate, manufacturing, agriculture, agriculture production etc., or, using Shariah expressions Murabaha, Mudaraba, Musharaka, Izara, etc.). The word “Islamic” is inserted in the above expression to restrict the type of rules that can govern different modes of finance to the Shariah rules. A complete definition for the term “Islamic Modes of Finance” may be given as follows:

“The systematic and detailed Shariah rules that govern the contractual relationship of an investment activity that can be applied for attracting money capital.” (Fahmy & Sarkar) (Source: www.islamibankbd.com). Not only a bank, but also an individual or organization can use Islamic modes of investment to earn profits for wealth maximization.

Difference between Islamic and Conventional Mode of Finance:

 Traditional Economists have defined Money as a commodity and a factor of production and they (economists) holds that Money itself has intrinsic value. Due to this view of the traditional economists, the conventional Banks can charge at a fixed rate for the amount of money they have lent to their clients as they (conventional Banks) follow traditional philosophy of business.

So, the conventional Banks lend money to the needy units of the society and they charge at a fixed rate for their funds without considering the return from the project.

On the other hand in Islamic Finance, Money is treated as value and not a commodity and Islamic teaching also holds that money itself has no intrinsic value, and forbids people from profiting by lending it, without accepting a level of risk – in other words, interest (known as “riba”) cannot be charged, as under Islamic system profit is generated only when something having intrinsic utility is sold or offered for use.

Islamic system prevents exploitation of Human Beings by treating money as a value and not a commodity and Islamic teaching also holds that –

Objectives and Principles of Investment:       

The objectives and principles of investment operations of the Bank are:

To invest fund strictly in accordance with the principles of Islamic Shariah.

To diversify its investment portfolio by size of investment, by sectors (public & private), by economic purpose, by securities and by geographical area including industrial, commercial & 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 accelerating 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 encourage social enlistment enterprises.

Steps of Investment Operations

In case of investment operation, Bank management follows some steps absolutely to avoid the forgery. The steps are as follows—

                    (A) Proposal Preparation

                    (B) Sanctioning

                    (C) Disbursement

                    (D) Recovery

 Proposal Preparation

The investment officer prepares the proposal for a relevant investment-client and sends it to the authorized officer or executive to permit it. In this case, he has to take some documents from the relevant investment-client and. He collects various necessary information about the client. Most of the documents are as follows:

Appraisal Report prepared by Bank, F-167 B.

Application of Client in his pad.

Application of Client in Bank’s form, prepared by client, F-167 A.

Audit Reports(last three years) of the related enterprise by Audit Firm including the following information, Balance Sheet, Schedule of Fixed Assets, Schedule of Proprietor’s Capital & Fund A/C, Profit & Loss A/C, Trading A/C

Proprietor’s curriculum vitae with business experience in his pad.

Schedule of movable properties of clients, prepared in his pad.

Schedule of Fixed Assets of the client in his pad, prepared by the client.

Schedule of Sundry Debtors in his pad, prepared by the client.

Schedule of Sundry Creditors in his pad, prepared by the client.

Statistical schedule of Income & Expenditure of last three years the related enterprise in his pad, prepared by the client.

Schedule of all the enterprises which are related with the relative enterprise for business purpose, prepared by client in his pad.

Schedule of owner’s SalesCenter, prepared by client in his pad.

Schedule of warehouses and its capacity.

Schedule of associate enterprises, prepared by client in his pad.

Schedule of investment in the business, prepared by client in his pad.

Certificate on other Bank’s investment to the relevant business (if any).

Import Registration Certificate (if necessary), attested copy.

Tax Pay Certificate, attested copy.

Trade License.

VAT payment certificate.

Stock Report of Goods including goods securities A/C, prepared by client in his pad, authorized by inspecting officers and also Investment Officer, 2nd Officer  & Manager.

Statements of various accounts of client and its partner concerns, prepared by Bank.

Client’s L/C from branch manager of the Bank.

Performance of partner concern’s L/C from other Bank (if any) by the branch manager of   the related Bank.

Property valuation certificate.

Physical inspection certificate of properties offered for mortgage with authorized signature of Investment Officer, 2nd Officer and Manager.

Memorandum and Articles of Association of client’s enterprise.

Lending investment risk analysis, prepared by Bank in its form.

All the above documents are signed by the client, attested by the gazetted officer (if any). After receiving these documents from the client the investment officer prepares the proposal and sends to the authorized officer or executive for sanctioning the investment.


 In this step the executive or officer who is responsible for sanctioning the investment, permit to invest obeying the organization’s rules & regulations and considering the documentations of the relevant client. And he sends the sanctioning letter to the relevant investment officer for disbursement.


In this step the investment officer of the relevant branch of bank disburses the permitted investment. In this case IBBL does not give all the amount of investment; but gives it partially for bank’s controlling opportunities. For this purpose the permitted investment is divided into some parts and the parts are given time to time in step by step by considering the paying conduct of the client. Here is the basic distinction between IBBL and Traditional Banks.

In case of disbursement, the following charge documents are taken from the client for every part of investment of the total investment. Application of client in his own relevant enterprise’s pad.  Quotation of goods must be verified including market price from supplier, accepted and signed by the authorized officer(s) of the Bank.

Bill from supplier (after sale).

Pre-Audit Memo on Investment,F-215.

Form of goods sales,F-191.

Demand Promissory Note, CF-1.

Balance Confirmation Letter, CF-16.

Letter of Disbursement, CF-6.

Demand Promissory Note Delivery Letter, CF-3.

Schedule of purchase and sales of goods, F-190.

Letter of Hypothecation, CF-5.

Trust Receipt, CF-11.

Letter of Guarantee, CF-14.

Related Agreement Form.

All the above charge documents are signed by the client, the Investment Officer, 2nd Officer and Manager.


The Bank invests its fund to the Clients as a rule the Clients generally pays the respective amount to the Bank timely. If the Client fails to pay the amount, the bank sends a notice three times to pay to the Bank. After the declaration of final notice, the Bank is bound to go to the legal action to recover its fund. In this case, the legal charge and fines must be brought by the Client.

The different investment modes of IBBL:

         There are three types of investment mechanism, which are:

               ÿ Bai Mechanism (Trading Mode)

               1. Bai Murabaha

               2. Bai Muazzal

               3. Bai Salam

               4. Bai Istishna

                  ÿ Ijara Mechanism (Leasing Mode)

                     1. Hire purchase (Ijara)

                     2. Hire purchase under shirkatul melk

                  ÿ Share Mechanism  

                      1. Mudaraba

Meaning of Murabaha

The terms “Bai-Murabaha” have been derived from Arabic words Bai and Ribhun. The word ‘Bai’ means purchase and sale and the word ‘Ribhun’ means an agreed upon profit. “Bai-Murabaha” means sale for an agreed upon profit. 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 an agreed upon profit payable today or on some date in the future in lump-sum or by installments. The profit may be either a fixed sum or based on a percentage of the price of the goods.

 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.

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.

Important Features of Murabaha

A client can make an offer to purchase particular goods from the bank for a specified agreed upon price, including the cost of the goods plus a profit.

A client can make the promise to purchase from the bank, that is, he is either to satisfy the promise or to indemnify any losses incurred from the breaking the promise without excuse.

It is permissible to take cash/collateral security to guarantee the implementation of the promise or to indemnify any losses that may result.

Documentation of the debt resulting from Bai-Murabaha by a Guarantor, or a mortgage, or both like any other debt is permissible. 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 in accordance with the specifications of the client, thereby taking ownership of the goods before signing the Bai-Murabaha agreement with the client.

Upon acquiring the goods, the bank assumes the risk of ownership. In other words, the bank is responsible for damages, defects, and /or spoilage to the merchandise until such time that it is actually delivered to the buyer.

The bank must deliver the goods to the client at the date, time, and place specified in the contract.

The bank sells the goods at a price above the cost to obtain a profit.  The sale price that is charged by the bank is agreed upon in the Bai-Murabaha.  The profit can be stated in terms of a flat dollar amount or on a percentage of the purchase price.  If a percentage is used, the percentage shall never be expressed in terms of time, in order to avoid confusion that the price is a form of interest (Riba), which is not allowed.

The price agreed to in the agreement is binding on both parties.

It is permissible for the bank to contract with a third party to buy and receive the goods on its behalf. This agreement must be a separate contract.

These features make Bai-Murabaha distinctive from all other modes of Islamic Investment.

There are certain steps to accomplish a deal as shown below:

Steps of Bai-Murabaha

First Step: The client submits a proposal regarding his requirements of the bank. The client sends a proposal with the specifications of the commodity to be acquired from the bank. The proposal also indicates details regarding the date, time and place of delivery as well as price and form of payment information. The bank responds by sending a counter proposal either accepting the buyer’s price or stipulating a different price.

Second Step: The client promises to buy the commodity from the bank on a BaiMurabaha basis, for the stipulated price. The bank accepts the order and establishes the terms and conditions of the transaction.

Third Step: The bank informs the client (ultimate buyer) of its approval of the agreement to purchase.  The bank may pay for the goods immediately or in accordance with the agreement.

The seller expresses its approval to the sale and sends the invoice(s).

Fourth Step: The two parties (the bank and the client) sign the BaiMurabaha Sale contract according to the agreement to purchase.

Fifth Step: The Bank authorizes the client or its nominee to receive the commodity

The seller   sends the commodity to the place of delivery agreed upon. The client undertakes the receipt of the commodity in its capacity as legal representative and notifies the bank of the execution of the proxy.

B) Bai-Muajjal

Meaning of Bai-Muajjal

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

The Bai-Muajjal may be defined as a contract between a buyer and a seller under which the seller sells certain specific goods, permissible under Shariah and law of the country, to the buyer at an agreed fixed price payable at a certain fixed future date in lump sum or in fixed installments.

There are some important features of Bai-Muajjal as given below:

Important Features of Bai-Muajjal

It is permissible and in most cases, the client will approach the bank with an offer to purchase a specific good through a Bai-Muajjal agreement.

It is permissible to make the promise binding upon the client to purchase the goods from the bank. In other words, the client is required to either satisfy the promise or to indemnify the bank for 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 bank for damages caused by non-payment.

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 in accordance with the specifications of the client, prior to signing the Bai-Muajjal Agreement with the client.

All goods purchased on behalf of a Bai-Muajjal agreement are the responsibility of the bank until they are delivered to the client.

The bank must deliver the goods to the client at the time and place specified in the contract.

The bank may sell the goods at a higher price than the purchase price to earn profit.

The price is fixed at the time of the agreement and cannot be altered.

The bank is not required to disclose the profit made on the transaction.

C) Bai-Salam

Meaning of Bai-Salam

Bai-Salam is a term used to define a sale in which the buyer makes advance payment, but the delivery is delayed until some time in the future. Usually the seller is an individual or business and the buyer is the bank.

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

The seller receives advance payment in exchange for the obligation to deliver the commodity at some later date. He benefits from the Salam sale by locking in a price for his commodity, thereby allowing him to cover his financial needs whether they are personal expenses, family expenses or business expenses.

The purchaser benefits because he receives delivery of the commodity when it is needed to fulfill some other agreement, without incurring storage costs. Second, a Bai-Salam sale is usually less expensive than a cash sale. Finally a Bai-Salam agreement allows the purchase to lock in a price, thus protecting him from price fluctuation.

 Steps of Bai-Salam

Cash sale or Sale on Credit – The bank pays the agreed upon price at the time of the contracts inception. The seller agrees to the delivery of the commodity some specified date in the future.

Delivery and Receipt of the Commodity on the Specific due Date: There are several options for delivery available to the bank   .

It is permissible to draw a Salam sale contract for a total to be delivered increments on different specified future dates.

It is a condition that the commodity is a liability debt. The seller is obliged to deliver the commodity when it is due, according to the specifications stipulated in the contract, whether or not his firm produces the commodity or obtained from other firms.

Salam sales are impermissible on existing commodities because damage and deterioration cannot be assured before delivery on the due date.

Salam is impermissible on Land lots and real estates.

Salam is permissible on a commodity of a specific locality if it is assured that it is almost always available in that locality and it rarely becomes unavailable.

It is a condition that the purchase price in Salam is specified and advanced to the seller at the time of signing of contract.

It is a condition in a Salam sale that the due date is known to avoid confusion, which may lead to a dispute.

It is a condition that the place of delivery be stated in the contract if the commodity requires special handling and delivery arrangements.

It is permissible to take a mortgage on Salam debt to guarantee that the seller satisfies his obligation by delivering the commodity on the due date.

It is impermissible for the buyer of a Salam commodity to sell the commodity before receiving it. It is known that the Salam commodity is a liability debt to the seller and not a commodity that exists. However, it is permissible for the buyer to draw a parallel Salam contract without connecting it to the first Salam contract.

 D) Istishna Sale

Definition of Istisna’a Sale

The Istisna’a sale is a contract in which the price is paid in advance at the time of the contract and the object of sale is manufactured and delivered later (IDB 1992, p.28). The majority of the jurists consider Istisna’a as one of the divisions of Salam, Therefore, it is subsumed under the definition of Salam. But the Hanafie school of Jurisprudence classifies Istisna’a as an independent and distinct contract. The jurists of the Hanafie school have given various definitions to Istisna’a some of which are: “That it is a contract with a manufacturer to make something” and “It is a contract on a commodity on liability with the provision of work”.  The Purchaser is called ‘Mustasnia’ contractor and the seller is called ‘Sania’ maker or manufacturer Islamic banks can utilize Istisna’a in two ways.

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

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

Each transaction is deemed a separate contract with payment being made in cash either immediately or on a deferred basis. Any disagreements that may arise are settled under each contract separately according to the provisions therein. The steps of the Istisna’a sale and the parallel Istisna’a have been discussed below.

 Steps of Istisna’a Sale

Istisna’a Sale Contract:  The Buyer expresses his desire to buy a commodity and brings a request to purchase the commodity to the bank. The method of payment, whether cash or deferred is set forth in the agreement. The bank agrees to deliver the commodity to the buyer at some agreed upon time in the future.

The Parallel Istisna’a Contract: In order that the bank is able to deliver said commodity in the Istisna’a agreement, the bank enters into a parallel Istisna’a agreement with a third party to either manufacture or otherwise deliver-said commodity. Obviously, the bank stipulates a price that is lower than that agreed to in the original agreement and requires delivery on or before the date stipulated in the original contract. agreement, agrees to manufacture the specific commodity and to deliver it on the due date agreed upon.

Delivery and Receipt of the Commodity: The seller in the parallel Istisna’a agreement, delivers the commodity to the bank on the agreed upon date. The bank, in turn, delivers the product to the buyer of the original Istisna’a contract, in accordance with the original agreement. In this way, all parties fulfill their obligations to the contract.

 Sharing Mechanism

A) Mudaraba

Definition of Mudaraba

The term Mudaraba refers to a contract between two parties in which one party supplies capital to the other party for the purpose of engaging in a business activity with the understanding that any profits will be shared in a mutually agreed upon. Losses, on the other hand, are the sole responsibility of the provider of the capital. Mudaraba is also known a Qirad and Muqaradah (Shirazi 1990, p.31).

Mudaraba is a contract of those who have capital with those who have expertise, where the first party provides capital and the other party provides the expertise with the purpose of earning Halal (lawful) profit which will be shared in a mutually agreed upon proportion.  This type of business venture serves the interest of the capital owner and the Mudarib (agent).Delivery of the crop during the harvest season. Thus banks provide farmers with the capital necessary to finance the cost of producing a crop.

Salam sale are also used to finance commercial and industrial activities. Once again the bank advances cash to businesses necessary to finance the cost of production, operations and expenses in exchange for future delivery of the end product. In the meantime, the bank is able to market the product to other customers at lucrative prices.

In addition, the Salam sale is used by banks to finance craftsmen and small producers, by supplying them with the capital necessary to finance the inputs to production in exchange for the future delivery of products at some future date.

Thus as has been demonstrated, the Salam sale is useful in providing financing for a variety of clients, including farmers, industrialists, contractors and traders. The proceeds in a Salam sale may be used

The capital owner may not have the ability or the experience to run a profitable business. On the other hand, the agent (the Mudarib) may not have adequate capital to invest in a business or project.  Therefore, by entering into a contract of Mudaraba each party compliments one another, allowing a business venture to be financed. The following are the steps of the Mudaraba contract.

Steps of Mudaraba 

The bank provides the capital as a capital owner. The Mudarib provides the effort and expertise for the investment of capital in exchange for a share in profit that is agreed upon by both parties.

The Results of Mudaraba: The two parties calculate the earnings and divide the profits at the end of Mudaraba. This can be done periodically in accordance with the terms of the agreement, subject to the legal rules that apply.

Payment of Mudaraba Capital: The bank recovers the Mudaraba capital it contributed before dividing the profits between the two parties because the profit is considered collateral for the capital.

Distribution of wealth resulting from Mudaraba: In the event a loss occurs, the capital owner (the bank) is responsible for the entire loss.  In the event of profits, they are divided between the two parties in accordance with the agreement between them, subject to the capital being recovered first.

The Mudarib does not receive his share of the profits until the final settlement of the Mudaraba. Once the Mudaraba has been settled, neither party is liable to the other without a new agreement being made.

The Mudaraba agreement may be terminated if one of the two parties decides to rescind the agreement. This is possible because the Mudaraba is an optional non-binding agreement. Some of the jurists hold the view that Mudaraba is binding and it cannot be rescinded if the Mudarib commences work.

B) Musharaka (Partnership)

Meaning of Musharaka

The word Musharaka is derived from the Arabic word Sharikah meaning partnership.

Musharaka is a contract of partnership between two or more individuals or bodies in which all partners contribute capital, participate in the management, share the profit as per pre-agree ratio and bear the loss, if any in proportion to their capital / equity ratio.

 Types of Musharaka

Musharaka may take two forms:

a)     Permanent Musharaka and

b)    Diminishing Musharaka.

These are discussed below:

a) Permanent Musharaka

In this case, the bank participates in the equity of a company and receives an annual share of the profits on a pre-rate basis. The period of termination of the contract is not specified. This financing technique is also referred to as continued Musharaka.

The contributions of the partners under this mode may be equal or unequal percentages of capital for the purpose of establishing a new income-generating project or to participate in an existing one. In this arrangement, each participant owns a permanent share in the capital structure and receives his share of the profits accordingly. This type of a partnership is intended to continue until the company is dissolved.  However, one can exit the partnership by selling his share of the capital to another investor.

Permanent Musharaka is used by Islamic Banks in many income generating projects. They can provide financing to their customers, in exchange for ownership and profit sharing in the proportion agreed upon by both parties.  In addition, the bank may leave the responsibility of management to the customer-partner and retain the right of supervision and follow up.

The three steps to establishing Permanent Musharaka are discussed below:

One – Partnership in Capital: The bank tenders part of the capital required in its capacity as a partner and authorizes the customer/partner to manage the project. The Partner tenders part of the capital required for the project and is entrusted with what he holds from the bank funds.

Two – Results of the Projects: The intent of the project is growth. However, the project may be profitable or it may loss money.

Three – The Distribution of wealth accrued from the Project: In the event a loss is incurred, each partner bears part of the loss proportionate to his share in capital. In the event the venture is profitable, earnings are divided between the two parties (the bank and the partner) in accordance with the agreement.

b) Diminishing Musharaka

Diminishing or Digressive Musharaka is a special form of Musharaka, which ultimately culminates in the ownership of the asset or the project by the client. It operates in the following manner.

The Bank participates as a financial partner, in full or in part, in a project with a given income forecast. An agreement is signed by the partner and the bank, which stipulates each party’s share of the profits.   However, the agreement also provides payment of a portion of the net income of the project as repayment of the principal financed by the bank. The partner is entitled to keep the rest. In this way, the bank’s share of the equity is progressively reduced and the partner eventually becomes the full owner.

When the bank enters into a Diminishing Musharaka its intention is not to stay in the partnership until the company is dissolved. In this type of partnership, the bank agrees to accept payment on an installment basis or in one lump sum, an amount necessary to buy the bank’s partnership interest.In this way, as the bank receives payments over and above it’s share in partnership profits, it’s partnership interest reduces until it is completely bought out of the partnership.

After the discharge, the bank withdraws it claims from the firm and it becomes the property of the partner.  The decreasing partnership arrangement is an Islamic bank innovation.  It differs from the permanent partnership only in continuity.  It appears that there are four steps of the diminishing partnership. Those are mentioned below.

 Steps of Diminishing Musharaka:

Participation in Capital: The bank – tenders part of the capital required for the project in its capacity as a participant and agrees with the customer/partner on a specific method of gradually selling its share in capital back to the partner.

The partner – tenders part of the capital required for the project and agrees to pay the agreed upon amount in return for the ultimate full ownership of the business.

Results of the Projects: The intent of the project is capital growth. The project may be profitable or lose money.

The distribution of the Wealth accrued from the Projects: In the event of loss each partner bears his share in the loss in his exact proportionate share of capital.  In the event that the project is successful, profits are distributed between the two partners (the bank and the customer) in accordance with the agreement.

The bank sells its Share of Capital: The bank expresses its readiness, in accordance with the agreement, to sell a specific percentage of its share of capital.

The partner pays the price of that percentage of capital to the bank and the ownership is  transferred to the partner.

This process continues until the bank has been fully compensated for it’s capital share of the business. In this way the bank has its principal returned plus the profit earned during the partnership and vice versa.

Lease Mechanism

A) Ijarah

Definition of Ijarah

Fuqaha (jurists) have defined Ijaraha as ownership of a benefit for consideration. This is also known as lease or Hire contract. Al-Ijarah is an Arabic term. This has been derived from the Arabic term “Ujr” or “Ujrat” which means ‘consideration’ or ‘return’ or ‘wages’.

According to Islamic Shariah (jurisprudence), Ijarah is a contract between two parties – the lessor and the lessee, where the lessees (Hirer or Mustajir) have the right to enjoy/reap a specific benefit against a specified consideration/rent/wages from the lessor – the owner (Muajjir).

Elements of Ijarah

 According 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 lessor, the owner of the property, and a lessee, the party that benefits from the use of the property.

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

The lessor (Mujjir) – The individual or organization who leases out/rents out the property or service is called the lessor.

The lessee: (Mustajir) – The individual or organization who hires/takes the lease of the property or service against the consideration rent/wages/remuneration is called the lessee (Mustajir).

The Benefit (Maajur) – The benefit that is leased/rented out is called the benefit (Maajur).

The rent (Aj’r or Ujrat) – The consideration either in monetary terms or in quantity of goods fixed to be paid against the benefit of the goods or service is called the rent or Ujrat or Aj’r.

Rules for Ijarah

It is condition that the subject (benefit/service) of the contract and the asset (object) should be known comprehensively.

It is a condition that the assets to be leased must not be a fungible one (perishable or consumable) which can not be used more that once, or in other words the asset(s) must be a non-fungible one which can be utilized more than once, or the use/benefit/service of which can be separated from the assets itself.

It is a condition that the subject (benefit/service) or the contract must actually and legally be attainable/derivable. It is not permissible to lease something, the handing-over of the possession of which is impossible. If the asset is a jointly owned property, any partner, according to be majority of the jurists, may let his portion of the asset(s) to co-owner(s) or the person(s) other than the co-owners. However, it is also permissible for a partner to lease his share to the other partner(s),

It is a condition that the lessee shall ensure that he will make use of the asset(s) as per provisions of the Agreement or as per customs/norms/practice, if there is no expressed provision.

The lease contract is permissible only when the assets and the benefit/service derived from it are within the category of ‘Halal’ or at least ‘Mobah’ as per Islamic Shariah.

The lessor is under obligation to enable the lessee to the benefit from the assets by putting the possession of the asset(s) at his disposal in useable condition at the commencement of the lease period.

In a lease contract, the period of lease and the rental to be paid in terms of time, place or distance should be clearly stated.

Everything that is suitable to be considered a price, in a sale, can be suitable to be considered as rental in a lease contract.

It is a condition that the rental falls due from the date of handing over the asset to lessee and not from the date of contract or use of the assets.

It is permissible to advance, defer or install the rental in accordance with the Agreement.

It is permissible to review the lease period or the rental or the both, if the lessor and the lessee mutually agree to do so.

The leased asset is a trust in the hands of the lessee. He will maintain the asset(s) with due prudence and shall not be held responsible for the damage or destruction of the asset without transgression, default or negligence, otherwise he must be responsible for the same.

The lessor/owner bears all the costs of legally binding basic repairs and maintenance including the cost of the replacement of durable parts on which the permanence and suitability of the leased assets depends.

It is permissible to make the lessee bear the cost of ordinary routine maintenance, because this cost is normally known and can be considered as part of the rental.

It is permissible for the lessee to let the asset to a third party during the lease period whether for the same rental or more as long as the asset is not affected by the change of user and not barred/restricted by the Lease Agreement/customs to do so.

It is permissible to purchase an Asset bearing a lease contract. The lease contract may continue since the purchased agrees to its continuity up to the end of the lease term. All rights and liabilities emanating from the lease contract will transfer to the new owner. But if the sale-contract is drawn and the purchaser is oblivious of the lease contract, he has the right to rescind the purchase contract and the lease continues.

As soon as the lease period terminates the lessee is under obligation to return the Asset to the owner or if the lessor agrees he may enter into a fresh lease contract or purchase if from the lessor on payment of agreed upon price as per market rate.

The lease contract is binding and no one party shall unilaterally rescind except reasons that abrogate binding contracts such as damage or destruction.

If the leased asset is damaged or destructed by the act of Allah and if the lessor offers a substitute with the same specifications agreed upon in the lease contract, the contract does not terminate.

It is permissible to sell the leased Asset by the lessor to the lessee during the tenure of the lease period either part by part or in full at a time. As soon as any part or in full the Asset is sold during the tenure of the Lease Agreement, the lease contract for that part or for the full Asset as the case may be, be lapsed and the rental ceased to apply.

It is permissible for the lessee to promise or to give undertaking to purchase the leased asset during the tenure of the lease period, either part by part or in full or at the end of the lease period in full. It is also permissible for the lessor to give similar promise to sell the Asset.

The lease with promise to purchase and sale is different from the memorandum of sale. The rent paid by the lessee cannot, in any way, be considered as part of the price of the Asset, rather it is the price of the service of the Asset.

It is permissible to divide the cost price of the Asset and ownership of the lessor to the Asset into several parts and to sell each part of ownership on payment of proportionate price/equity of the lessor under a separate sale contract.

B) Hire-Purchase Under Shirkatul Melk

Hire-Purchase under Shirkatul Melk has been developed through practice. Actually, it is a synthesis of three contracts: (a) Shirkat; (b) Ijarah, and (c) Sale. These may be defined as follows:

Definition of Shirkatul Melk: ‘Shrkat’ means partnership. Shirkatul Melk means share in ownership. When two or more persons supply equity, purchase an asset and own the same jointly and share the benefit as per agreement and loss in proportion to their respective equity, the contact is called Shirkatul Melk. In the case of Hire Purchase under Shirkatul Melk, Islamic banks purchase assets to be leased out, jointly with client under equity participation, own the same and share benefit jointly till the full ownership is transferred to the client.

Definition of Ijara: The term ‘Ijara’ has been defined as a contract between two parties, the lessor and the lessee, where the lessee enjoys or reaps a specific service or benefit against a specified consideration or rent from the asset owned by the lessor. It is a lease agreement under which a certain asset is leased out by the lessor or to a lessee against specific rent or rental for a fixed period.

Definition of Sale contract: This is a contract between a buyer and a seller under which the onwnership of certain goods or asset is transferred by the seller to the buyer against agreed upon price paid by the buyer. In the case of Hire Purchase under Shirkatul Melk, the lessor bank sells or transfers its title to the asset under a sale contract on payment of sale price.

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 money, own the same jointly, share 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 leased 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 as a whole within the lease period or on expiry of the lease agreement. Hire-Purchase under Shirkatul Melk contract is to a great extent similar to the contract of Ijarah Montahia Bil Tamlek as termed by Accounting and Auditing Standards Board of the Account and Auditing Organization of Islamic Financial Institutions (AAOIFI).

Stages of Hire Purchase under Shirkatul Melk

 Hire Purchase under Shirkatul Melk Agreement has got three stages:

Purchase of asset under joint ownership of the lessor and the lessee.

Hire, and Sale and transfer of ownership by the lessor to the other partner – lessee.

Important Features

In case of Hire Purchase under Shirkatul Melk transaction the asset/property involved is jointly purchased by the lessor (bank) and the lessee (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 (lessor bank and lessee client) are clearly mentioned. Under this agreement the lessor and the lessee become co-owners of the asset under transaction in proportion to their respective equity.

In Hire Purchase under Shirkatul Melk Agreement the exact ownership of both the lessor (bank) and lessee (client) must be recognized.  However, if the partners wish and agree 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.

The share/part of the purchased asset owned by the lessor (bank) is put at the disposal possession of the lessee (clients) keeping the ownership with him 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 clearly stated. Under this agreement the lessee (client) becomes the owner of the benefit of the asset not of the asset itself, in accordance with the specific provisions of the contract that entitles the lessor (bank) the rentals.

As the ownership of leased portion of asset lies with the lessor (bank) and rent is paid by the lessee 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 Lessor (bank) does not sell or the lessee (client) does not purchase the asset but the lessor (bank) promise to sell the asset to the lessee only if the lessee only if the lessee pays the cost price/equity price of the asset as fixed and as per stipulations on which the lessee also gives undertakings.

The promise to transfer legal title by the lessor and undertakings given by the lessee to purchase the ownership of leased asset upon payment part by part as per stipulations are affected only when it is actually done by a separate sale contract.

As soon as any part of lesssor’s (bank’s) ownership of asset is transferred to the lessee (client), that becomes the property of the lessee 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 equit7y of both parties deposited and the asset is purchase and continues up to the day on which the full title of lessor is transferred to the lessee.

The hire contract becomes effective from the day on which the lessor transfers the possession of the leased asset in good order and usable condition, so that the lessee may make use of the same as per provisions of the agreement.

Hire Purchase under Shirkatul Melk Mode is a combination of three contacts. All rules governing the lease contract should be applicable in this mode also. Moreover, the rules for Musharakah and sale contracts will also apply to this. In addition, the following should also be followed:

Under Hire Purchase Shirkatul Melk Agreement, both the lessor and the lessee must pay their respective equity as agreed upon to purchase the desired asset under joint ownership.

Ownership of the asset of both the lessor and the lessee should be recognized as per law of the land.

 Investment under Special Scheme of IBBL:

Islamic Bank Bangladesh Limited being welfare oriented Banking institution has by now designed and implemented 11(Eleven) investment schemes keeping in view the needs of different sectors and various sections of people for their Socio- Economic upliftment and to improve their quality of life. All the schemes so far introduced have gained popularity and received wide response of the general masses and is also being appreciated by the intellectual classes of the society.

  List of the IBBL’s Special Schemes:

Small Business Investment Scheme (SBIS)

Investment Schemes for Doctors (ISD)

Agricultural Implements Investments Scheme (AIIS)

House Hold Durable Scheme (HDS)

Housing  Investment Scheme (HIS)

Real Estate Investment Program (REIP)

Transport Investment Scheme (TIS)

Rural Development Scheme (RDS)

Car Investment Scheme (CIS)

Mirpur Silk Weavers Investment Scheme (MSIS)

Micro Industries Investment Scheme (MIIS)

The Management of the Bank are thinking to introduce more welfare oriented Schemes immediately. In addition to the above 11 Special Investment Schemes, the Bank also have 2(two) more Schemes for the employees Of the Bank.

StaffHouseBuilding Investment Scheme (SHBIS)

Staff Household Durable Scheme (SHDS)

Salient features of the Special Investment Scheme of Islami Bank Bangladesh Ltd. Are described below:

Small Business Investment Scheme (SBIS)

Target Group:

Educated less educated youth with poor or no means, Small Traders, Entrepreneurs and Businessman.

Ceiling of Investment:       

Dhaka & Chittagong Metropolitan Branches Tk. 1.00 lac.

Branches under Districts and Divisional Head quarter Tk.0.75 lac.

Other Branches Tk. 0.50 lac.

Mode of Investment:

  • Bai-Muajjal
  • HPSM

Period of Investment:

  • Bai-Muajjal : 12 Months
  • HPSM: 24 Months

Clients Equity:   20% incase of HPSM.


Personal Guarantee- up to Tk. 30000/-

Collateral security above Tk. 30000/-

Investment Schemes for Doctors (ISD):

Target Group:

Graduate, Post Graduate who are in service but intends to go for self employment or having establishment but  intend to expand the scope of their service, Specialists Doctors and existing Clinic/Hospital/Diagnostic centre.

Ceiling of Investment:

For self employment Tk. 5.00 lac each.

Specialists Doctors Tk.10.00 lac each.

Clinic : Unlimited

Mode of Investment:

  • Bai-Muajjal
  • HPSM

Period of Investment: Maximum 60 months.

Clients Equity:

New Doctor-10%

Established Doctor-20%

Existing Clinic-30%


Personal Guarantee.

Collateral security.

Deposit of original certificate

 Agricultural Implements Investments Scheme (AIIS)

Target Group:  Literate (Maximum class eight pass) unemployed rural youth and farmer directly related with cultivation.

Ceiling of Investment:   Maximum Tk. 75000/-

Mode of Investment:     HPSM

Period of Investment:   24 months.

Clients Equity:              20%

Security:  Personal Guarantee, Collateral security of immovable property.

House Hold Durable Scheme (HDS)

Target Group:

Officers & UD clerk/Senior Asst. of the Govt., Semi Govt., Autonomous Bodies, Bank, Financial Institution, Armed Force, BDR, Police, Ansar, Teachers of the University, Govt. College, School & Madrasha, International Financial Organization, Renowned Multinational Companies, Local Reputed Public Limited Companies & Teachers of the Private Universities, University Colleges, Medical College, High School, Madrasha & Govt. Primary Schools, House Owners of Dhaka City & District Head Quarters, Doctors, Engineers, Architects, CA’s, FCMA’s, Existing investment clients of the Bank, Existing Deposit clients, Shopkeeper/Businessman, Wage earners, Banks paneled Lawyers, Bankers enlisted C & F Agents, Students of Medical Colleges, Universities, BITs and University Colleges at degree level

Ceiling of Investment:

Professionals groups: Tk. 3.00lac

Against TDR and MSA: Tk. 2.00lac

Other Categories : Tk. 1.00 lac

Serviceholder : Tk. 0.75 lac

Student : Tk. 0.40 lac

NCOs of Army, Teachers of College, Madrasha, Primary Schools and Private Schools : Tk. 0.35 lac

Mode of Investment: Bai-Muajjal

Period of Investment:  24 months.

Clients Equity: 25%

Security:  Personal Guarantee.

 Housing Investment Scheme (HIS)

In service defense officers

University Teachers

Qualified Engineers & Doctors

Permanent officers of Govt., Semi Govt. & Autonomous Bodies.

Reputed Multinational Companies

International Financial & Donner Agencies

Teachers of  the Private Universities, University College & Medical Colleges

Wage Earners Professionals etc.

Ceiling of Investment:

60% of the total cost of construction maximum Tk. 30.00 lac.

50% of the total cost of flat/ready made house maximum Tk. 20.00 lac.

Mode of Investment:   HPSM

Period of Investment: 15 years

Clients Equity:



Security:  Mortgage of the property/flat where construction will be made.

4.10.7: Real Estate Investment Program (REIP)

Target Group                      :    Who have own land/incomplete multistoried building.

Ceiling of Investment        :   50% of the total cost or 30 lac which is less.

Mode of Investment           :   HPSM

Period of Investment         :   Maximum 15 years

Clients Equity                      :   50% of total cost

Security                                 :   Land & buildings of the project.

Transport Investment Scheme (TIS)

Target Group:

Bus/Truck/Minibus (Persons, Businessmen, Firm already running transport business successfully and also capable & potentially in this regard).

Private car, Microbus.Jeep.

Auto Rikshaw/Tempo/Pickup Van.

Water transport (a. cargo Vessel for 500 ton Capacity, b. CoasterBay crossing vessel having 650 to 800 ton capacity, c. Passenger Launch).


Ceiling of Investment:

50% of the purchase cost.

70% of the purchase cost, Incase of leasing 80% of the acquisition cost.

Mode of Investment:    


HPSM & Leasing

Period of Investment:

Up to 3 years from the date of handing over the vehicle.

The lease term shall very from4-5 years starting from the date ofexecution of lease agreement. Incase of HPSM maximum 3 Years.

Maximum 3 Years.

Maximum 5 Years.

Clients Equity:     


30% Incase of leasing down payment will be 20% of acquition cost.



 Collateral security of immovable properties.

Ownership of the vehicle shall be retained in the Banks name.

 Incase of private car, Micro bus, Jeep,P.G of the semi   Colleague/higher officials (incase of govt./Semi Govt    Corporation). Corporate from the employer/Chairman of the Pvt. Ltd. Company or business house.

 Rural Development Scheme (RDS)

Target Group: Farmers having 0.50 acres of land, Persons engaged off-farm activities having no land, destitute women, Persons/farmer permanently residing in the village.

Ceiling of Investment:  Tk. 3000 to Tk.25000

Mode of Investment:

  • Bai-Muajjal
  • HPSM
  • Mudaraba
  • Musharaka
  • Bai-Salam
  • Murabaha

Period of Investment:     Maximum 3 years

Clients Equity:                Incase of HPSM 10%


Group Guarantee

Memorandum of Deposit of title deed

 Car Investment Scheme (CIS)

Target Group:

Category-A: Permanent Senior Officials/Executives of the Govt. Semi Govt., Autonomous Bodies, Bank, Financial Institution, Armed Force, BDR, Police, Ansar, Teachers of the University, Govt. Colleges.

Category-B: Executive Directors of the big Companies, Business House, Members of all others professionals having good income level and payment capacity.

Ceiling of Investment:            Maximum Tk. 7.00 lack.

Mode of Investment:              HPSM

Period of Investment:            Maximum 48 months

Clients Equity:                       Minimum 3% of the purchase cost.

Security: Category-A: personal guarantee of any of the colleagues of  the client in the same rank or above.

Category-B: Mortgage of land, Bank guarantee or deposit of any kinds of security instruments.

 Mirpur Silk Weavers Investment Scheme (MSIS)

 Target Group:

The weaver’s family who are at present running at least 2-7 looms and willing to increase 10 looms.

Weavers who have 10 looms and intends to avail working capital.

Weavers with experience and good reputation.

Ceiling of Investment:

Working Capital: Tk. 10000/-Per loom maximum Tk. 50000/-.

For HPSM per loom Tk. 15000/- and Maximum Tk. 50000/-

Mode of Investment:    i. Bai-Muajjal

                                          ii. HPSM

Period of Investment:   i. Bai-Muajjal – 12 months

                                          ii. HPSM – 24 months

Clients Equity:              20% incase of HPSM.


   Personal guarantee of a respectable person acceptable to the Bank.

  Group guarantees by the clients a group to be foamed with 5 clients.

 Micro Industries Investment Scheme (MIIS)

 Target Group:

Engineering diploma or degree holder, educated unemployed, Youth having technical knowledge, skilled, Semi-skilled persons, Wage earners & BMRE of existing enterprise.

Ceiling of Investment:

                                         i. Maximum Tk. 2.00 lack

                                           ii. Tk. 2.00 lack against personal guarantee.

Mode of Investment:     i. HPSM

                                           ii. Murabaha (TR)

Period of Investment:          i. %5 Years for HPSM

                                                ii. I Year for Murabaha (TR)i.e. working capital.

Clients Equity:            i. 31% of the total cost of Machineries.

                                         ii. 40% of the total cost of the project whichever is less.

Security:                             i. Collateral security of immovable property.

                                             ii. Personal guarantee of a person acceptable to the Bank.

 Real Estate Investment program

Target Group                      :  Who have own land/incomplete multistoried building in a

Ceiling of Investment        :  50% of the total cost or 30 lac which is less.

Mode of Investment           :  HPSM

Period of Investment         :  Maximum 15 years

Clients Equity                      :  50% of total cost.

Security                                  :   Land and building of the project.

Chapter Five




Investment of the Bank increased to Tk.180054.00 million as on 31.12.2008 from Tk. 214616.00 million as on 31.12.2009 showing an increase of Tk.34562 million i.e.19.20% growths as against 18.57% growth of investment in banking sectors. This increased investment growth of the Bank in 2009   is due to the thrust given to promote investment for effective utilization of depositors’ fund. The percentage of increase of Investment of IBBL in 2008 was 24.24%. The share of Investment of IBBL in banking sector as on 31.12.2009 was 7.11%.

 Composition of the investment portfolio:

SectorsProportion in %
Agriculture and Rural Investment2%
Industrial Term Investment18%
Industrial Working Capital15%
Housing and Real Estate10%
Electricity, Gas, Water & Sanitation0.5%
Transaction & Communication Storage5%
Import, Export & Local & Trade Selected Activities40%
Household Durable Schemes1.50%
About Storage1%
Investment Schemes for Small Business1.50%
Investment Schemes for Doctors0.50%
Poultry & Dairy0.50%
Rural Development Schemes2%
Micro Industry Schemes0.50%
Others Special Schemes1%
Other productive Purpose1%

                                                                      Table No. 5.1

From the table we find that the IBBL focuses more on import, export investment that play a vital role for the development of national growth. It also provides facilities to industrial sectors more than other sectors.

Five years investment perspective plan

 In accordance with the investment Policy, 5 year Perspective Plan from 2008 to 2012 is formulated. Size-wise and sector-wise, allocation of estimated investable funds is made in accordance with the weight age given in the investment:


Special scheme (2)

Agro base industry (3)

Project investment (4)Construction (5)Transport (6)

Table No. 5.2

Chart No. 5.1

Diversification of Investment

 This is one of the motto so Islami Bank to invest their deployable fund in a diversified way i.e. diversification by size, sector, purpose and geographical area in order to ensure balanced growth of the society equity and justice. With this view the Management has adopted the slogan for the year 2009 as “Diversification of Investment”

Why and where to Diversify

70% of the total investment is concentrated to 0.36% clients which is not acceptable for a Shariah compliant Bank. Moreover, it is alarming for an Bank from the risk point of view.

Investment under Commercial Sector:

IBBL highly concentrates on the commercial sector for investment.  Short-term and continuing investments allowed for commercial purposes other than exports fall under this category. It includes import financing, financing for internal trade, service establishment etc. This category of investment facilities are provided in the form of (i) Bai-Muazzal (ii) Bai-Murabaha.

                      Table No: 19                                                        (Amount in Million)

YearInvestment amount in Commercial Sector

 (Source: Annual Development Conference of IBBL: 2005-2007)

From the above figure, it can be said that, the Investment of IBBL in Commercial sector is increasing year by year. Total amount of investment in this sector of the bank stood at Tk. 44,860 million as on December 31, 2007as against Tk. 28,983.8 million as on December 31, 2006 showing an increase of Tk. 15,876.2 million. This is satisfactory for the bank.

Investment under Agricultural Sector:

                   Table No: 20                                                       (Amount in Million)

YearInvestment amount in Agricultural Sector

(Source: Annual Development Conference of IBBL: 2005-2007)

From the above figure it can be said that, IBBL has a very low concentration on investing in the agricultural sector. In 2005 the amount of investment in agricultural sector was more than 2006.But in 2007 it has increased.

Investment under Real Estate Sector:

                   Table No: 21                                                        (Amount in Million)

YearInvestment amount in Real Estate Sector

 (Source: Annual Development Conference of IBBL: 2005-2007)

By observing the figure it can be said that, the investment of IBBL in real estate sector is increasing year by year, this is satisfactory for the bank.

Investment under Transport Sector:

                    Table No: 22                                                      (Amount in Million)

YearInvestment amount in Transport Sector

(Source: Annual Development Conference of IBBL: 2005-2007)

By observing the figure it can be said the investment of IBBL in transport sector is decreasing year by year, this is not satisfactory for the bank. The highest level of investment in this sector was in the year 2005.

Investment under Other Sector:

                    Table No: 23                                                      (Amount in Million)

YearInvestment amount in Other Sector

(Source: Annual Development Conference of IBBL: 2005-2007)

By observing the figure it can be said the investment of IBBL in other sector is fluctuating year by year. The highest level of investment in this sector was in the year 2006.

 Sub-Sector Wise Investment of IBBL:

The IBBL always encourages its officials to provide its suitable investment services for the following sectors, which must meet the other requisites as set by the Bank from time to time:

Table: 24



Agro Based

Steel & Enginnering






Health Care

Power (Electricity)

Printing & Packaging

Filling Station


Table: 25

Sub Sector Wise Investment

Percentage in Total (2007)

Agro Based7%
Steel & Engineering5%
Health Care0.48%
Power Electricity0.42%
Printing & Packaging0.49%
Filling Station0.21%

(Source: Annual Development Conference of IBBL: 2005-2007)

 From the above figure it can be said that, IBBL has a very wide coverage in textile sector for making investment. The bank has the highest investment in other sector in 2007.

Growth of Investment of IBBL: (2003-2007)

Investment is the main key factor of a bank’s operation. The proper management o investment defines the success of a bank. In this part I will analysis all the main areas of investment that are covered by Islami Bank Bangladesh Ltd.

          Table: 26                                                                    (BDT In Million)

YearInvestment Amount

(Source: Annual Report of IBB 2003-2007)

From the above figure, it can be said that, the growth of Investment of IBBL is increasing year by year. Total amount of investment of the bank stood at Tk. 1, 44,921 million as on December 31, 2007as against Tk. 1, 13,575 million as on December 31, 2006 showing an increase of Tk. 31,346million. It is a good sign for the bank.

Growth rate of Investment:

    Table No: 27

YearGrowth rate of Investment

 From the above figure it can be said that, though the growth of investment amount is increasing year by year but the growth rate of investment is fluctuating year by year.

  Investment and Profit situation of IBBL: 

  Table:  28                                                                                           (Amount in Million)

YearInvestment AmountProfitGrowth rate of profit

(Source: Annual Report of IBBL-2007)

From the above figure, it can be said that the investment of IBBL is increasing year by year but on the other hand the profit from investment is not increasing that much comparing with the invested. In this regard the profit level IBBL is not satisfactory.

 Growth rate of profit from Investment:

From the above figure it can be said that, the growth rate of profit from investment is decreasing in 2007 than 2006.

Trend Analysis between Investment & Profit:

From the observation of trend analysis of investment & profit, we have found that investment & profit both variables are positively increasing from 2005-2007 which indicates a high positive correlation between investment & profit. This actually means that IBBL’s Investment Performance is good enough to produce a greater profit. For that reason to increase IBBL’s profitability in future, it has to concentrate on the investment activities.

Distribution of Investment by Sectors (Public & Private):

Table: 29                                                                             (Amount in Million)

YearPublic SectorPrivate SectorTotal

(Source: Annual Reports of IBBL: 2005-2007)

The investment in private and public sector both are more effective for any country. But the IBBL distributes the maximum investment in private sector because it earned comparatively more profit from private sector and the investment amount is increasing year by year. It is a good sign for the bank. But from the economic point of view I want to say that, IBBL should increase its investment in public sector, i. e. the bank should involve profitably in this sector for the development of the bank as well as the economy.

Distribution of Investment by Areas (Rural & Urban)

Table:  30                                                                                  (Amount in Taka)


(Source: Annual Reports of IBBL)

IBBL invests the maximum money in urban area. Because most of entrepreneurs and businessmen stay in urban place. However, most of the organization established in urban area.

Investment in Special Scheme of IBBL

    Table:   31                                                               (Fig. in Million/ as on 30.11.2008)

Name of Scheme200620072008% in 2008
Rural Development Scheme22422885306019.3%
House Hold Durable Scheme7007436704.2%
Investment Scheme for Doctors3324180.1%
Transport Investment Scheme26992624324620.5%


Small Business Investment Scheme76887610796.8%
Micro Industries Investment Scheme636320.2%
Agricultural Implements Scheme1214280.2%
Housing Investment Scheme5074854342.7%
Real Estate Investment Program65836903724045.7%
Car Investment Scheme2431430.3%

(Source: Annual Development Conference of IBBL-2009)

From the above graph we can say that the bank has disbursed maximum amount of investment under Real Estate Investment Program, Transport Investment Scheme and Rural development Scheme.

Chapter Seven


Comparative Analysis with other Bank:

In our report I have tried to scrutinize different modes of investment of IBBL. In order to identify the position of the IBBL I have compared its performance and position between IBBL and Export Import Bank of Bangladesh Limited (EXIM Bank).

Background of Exim Bank Ltd.


Exim Bank Limited was established in 1999 under the leadership of Late Mr. Shahjahan Kabir, founder chairman who had a long dream of floating a commercial bank which would contribute to the socio-economic development of our country. He had a long experience as a good banker. A group of highly qualified and successful entrepreneurs joined their hands with the founder chairman to materialize his dream. In deed, all of them proved themselves in their respective business as most successful star with their endeavor, intelligence, hard working and talent entrpreneurship. Among them, Mr. Nazrul Islam Mazumder became the honorable chairman after the demise of the honorable founder chairman.

The bank starts functioning from 3rd August, 1999 with Mr. Alamgir Kabir, FCA as the adviser and Mr. Mohammad Likiotullah as the Managing Director. Both of them have long experience in the financial sector of our country. By their pragmatic decision and management directives in the operational activities, this bank has earned a secured and distinctive position in the banking industry in terns of performance, growth, and excellent management. The authorized capital and paid up capital of the bank are Tk. 1000.00 million and Tk. 313.87 million respectively.

The bank has migrated all of its conventional banking operation into Shariah based Islami banking since July/2004.

Vision & Mission:

To be the finest bank in the banking arena of Bangladesh under the Shariah guidelines.

To maintain Corporate and business ethics.

To become a trusted repository of customers’ money and their financial adviser.

To make their stock superior and rewarding to the customers/shareholders.

To display team spirit and professionalism.

To have a Sound Capital Base.

To provide high quality financial services in export and import trade.

To provide excellent quality Customer service.

 Financial Highlights of EXIM Bank Ltd.  

       Table no: 32                                                                                        (Amount in Million)

Sl. NoParticulars200520062007
1Authorized Capital100.00350.00350.00
2Paid-up Capital87.90171.38214.22
3Reserve Fund57.0081.09113.46
5Investment (General)2604.603264.134019.52
6Investment ( Shares on Bonds)163.30223.33245.77
7Foreign Exchange Business7294.009617.5111790.01
 a) Import Business4143.204959.676139.94
 b) Export Business3128.504623.465579.04
 c) Remittance22.3034.3871.03
8Operating Profit117.58137.87190.82
9Loan as a % of total Deposit91.97%93.18%96.75%
10No. of Foreign Correspondent222246246
11Number of Employees93410201104
12Number of Branches283039
13Return on Assets1.65%1.73%2.00%

(Source: Annual Repot of EXIM Bank Ltd.; 2005-2007)

SWOT Analysis of Exim Bank Ltd.


Reputation of being a provider of superior quality financial services among its customers. (According to our observation.)

Several types of differentiated Islamic Banking Products (both deposit and investment) with unique features and facilities, which are so much helpful for enhancing the economic growth. Such as “Quard” facility which refers to the loan without interest.

Maintenance of Islamic Shariah and functioning in a Muslim country.

Strong concentration on foreign trade and RMG sector of Bangladesh.

A separate Investment Division at the Head Office, which is assigned with the duties of maintaining effective relationship with the customer, marketing of investment products and exploring new business opportunities.

Separate division for investment recovery; all sorts of legal issues and recoveries are efficiently and effectively handled by this Division of the Bank.

Investment proposals are appraised in terms of borrower risk analysis, financial statement analysis, industrial analysis, historical performance of the customer, security of the proposed investment facility and market reputation of the borrower etc. as instructed by Bangladesh Bank.

Branch Investment marketing committee, which is responsible to promote the investment products.

Written investment policy manual, which helps the investment officials to make effective decision.

Highly proficient management team, which includes members with immense experience and skills on banking sector of Bangladesh.

Own training institution which arrange useful and distinctive training program time to time.

Strong capital base and maintain all the statutory requirements to be a good Bank.

Improved credit rating, which reflects the credit worthiness of this Bank to the investors, achieved from a credit rating farm, named CRISL (Credit Rating Information & Services Limited). Currently they are rated as BBB+ for long term, while they were rated as BBBB for long term in previous year.


Narrow product/service portfolio, particularly the investment service portfolio; such as currently they do not provide consumer financing facility, which is so much popular in these days.

Long time processing of investment proposals. (The average loan/investment processing time is relatively long. Usually it takes over a month to complete a particular investment process.)

Duties and responsibilities of the employees are not clearly defined.

Centralization of approval authority to the executive committee of the Bank.

Shortage of personnel, who are specialized in Islamic Investment field.

Lack of sufficient Islamic Investment Risk Analysis and measurement tools.

Most of the tasks including calculations are done manually, which kills the valuable time of both the clients and Bank.

Low geographic coverage (only nine branches are operating in rural areas).

Unavailability of credit card facility for all customer groups. It provides credit card facility only for the selected customer groups.

Name of the products/services are so much cryptic and difficult to understand, such as – Mudaraba, Murabaha, Musharaka etc and most of the customers often get panic after hearing the name of the products.

Unavailability of online banking facility.

Lack of strong and attractive promotional activities.


Strong appetite for Islamic financial services among the people of Bangladesh.

Immense growth opportunities in consumer banking, money market operation and SME financing due to global economic recovery.

Possibility to generate very high rate of return as compared to fixed rate of interest.

An industry with an endless demand.

The use of latest technology in all spheres of banking, which will increase the bank’s efficiency and service quality more.

Introduction of consumer loan facilities like car loans, student loans, marriage loans, etc will help the Bank to generate more revenue.

Introduction of online banking facility will enable the bank to offer its banking service beyond its national border.

Expansion of geographic coverage.

Expansion of its existing products/services basket.

EXIM Bank Ltd. Ltd. can introduce special corporate scheme for the corporate customer or officer who have an income level higher from the service holder.

Expansion of existing Banking networks through merge with other Islamic Banks will facilitate the bank to enjoy the competitive advantage.

Wider scope of activities and investments.


Islamic modes of Investments are so much risky as compared to conventional modes of investment as the returns form investments are not fixed and rely largely on honesty, skills and morality of the clients.

Growing default risk tendency among the people of Bangladesh.

Lack of Islamic investment risk analysis tools and methodologies to analyze the risk associated with an investment facility.

Lack of awareness regarding the Islamic Banking system among the people of Bangladesh.

Increased competition from fellow Islamic Banks and Other Commercial Private Banks (PCBs).

Lack of adequate guideline by the Central Bank on the basis of Islamic Shariah.

Limitation (as an Islamic Bank) to borrow from the money market (short term funds), which may produce a threat to the liquidity of the Bank.

Unfavorable Government rules and regulation regarding Banking business.

Unfavorable economic and political climate, such as high inflation rate & continuous devaluation of money.

Comparisons between IBBL and EXIM Bank Ltd

Making comparison of anything with other requires extensive & significant knowledge about the subject matter. In this chapter I critically analyze the comparisons the performance at different area with another Islami Shariah Based Bank i.e. EXIM Bank Ltd.At present, EXIM Bank Ltd. has a good position among the other Islami Shariah Based Bank except IBBL & the overall growth of this bank is increasing year by year as we know the bank has migrated all of its conventional banking operation into Shariah based Islami banking since July/2004. EXIM Bank Ltd. practices various tools & techniques in their management style which is the major factor for its success.

 Paid up Capital

   Table no: 33                                                              (Amount in Million)

EXIM Bank Ltd.313.88627.75878.851713.762142.20

Source: Annual reports of IBBL & EXIM Bank Ltd. 2003-2007

Paid-up Capital situation of EXIM Bank Ltd. and IBBL

Though paid-up capital of EXIM Bank Ltd. is increasing year by year but Islami Bank Bangladesh Limited has larger Paid up capital than EXIM Bank Ltd.

Total Assets:

   Table no: 34                                                                     Taka in Million

EXIM Bank Ltd.17888.6624355.7533716.7041793.5451503.03

Source: Annual reports of IBBL & EXIM Bank Ltd. 2003-2007

Total Assets situation of EXIM Bank Ltd. and IBBL

IBBL has a larger volume of total assets than EXIM Bank Ltd.


   Table no: 35                                                                  Taka in Million

EXIM Bank Ltd.15242.9719078.1828139.2135032.0241546.50

Source: Annual reports of IBBL & EXIM Bank Ltd. 2003-2007

From the above table, we see that, IBBL has a very good position in deposit collection. But as a new bank compared to IBBL, EXIM Bank Ltd. has a satisfactory level of deposit.

The Growth rate comparison of deposit between IBBL and EXIM Bank Ltd.:

      Table no: 36

EXIM Bank Ltd.25.16%47.49%24.50%18.60%

 From the above figure it can be said that, the growth rate of deposit of IBBL is more or less stable from the year 2004-2007, on the other hand, the growth rate of deposit of EXIM Bank Ltd. is fluctuating year by year which is not desirable.

Import Businesses

    Table no: 37                                                                                                Amount in Million

EXIM Bank Ltd.19260267814143249596.7061399.40

Source: Annual reports of IBBL & EXIM Bank Ltd. 2003-2007

From the above table we see that, the market share of IBBL in Import Business is on top. But the growth of EXIM Bank Ltd. is also good. As a new bank its import business is spreading day by day.

The Growth rate comparison of Import Businesses between IBBL and EXIM Bank Ltd.:

       Table no: 38

EXIM Bank Ltd.39.05%54.71%19.71%23.80%

 From the above figure it can be said that, the growth rate of import businesses of EXIM Bank Ltd. is more fluctuating year by year than IBBL.

Export Businesses

Table no: 39                                                                                        Amount in Million

EXIM Bank Ltd.15124.6022418.403128546234.6055790.42

Source: Annual reports of IBBL & EXIM Bank Ltd. 2003-2007

From the above table we see that, the export businesses of EXIM Bank Ltd. are quite satisfactory in the comparison with IBBL.

The Growth rate comparison of Import Businesses between IBBL and EXIM Bank Ltd.:

Table no: 40

EXIM Bank Ltd.48.22%39.55%47.79%20.67%

 From the above figure it can be said that, the growth rate of export businesses of EXIM Bank Ltd. and IBBL is fluctuating year by year.

 Net profit after tax:

   Table no: 41                                                                                     Amount in Million

EXIM Bank Ltd.254.79381.80555.34650.29930.84

Source: Annual reports of IBBL & EXIM Bank Ltd. 2003-2007

Net profit after tax situation of EXIM Bank Ltd. and IBBL:

In the above years the growth of the net profit is positive for EXIM Bank Ltd. But in comparison with IBBL it has a very lower level of net profit. IBBL has a great growth of net profit.

Total Operating Expenditure:

    Table no: 42                                                                                                Amount in Million

EXIM Bank Ltd.1399.251808.782257.633588.594499.76

Source: Annual reports of IBBL & EXIM Bank Ltd. 2003-2007

From the above table we see that, the expenditures of IBBL are increasing year by year with the expansion of the banking activities and the other banks of the industry do not have any exception. EXIM Bank Ltd. is also facing the increasing amount of expenditure. The operating efficiency is good of EXIM Bank Ltd. than IBBL.

The Growth rate comparison of total operating expenditure between IBBL and EXIM Bank Ltd.:

  Table no: 43

EXIM Bank Ltd.29.27%24.82%58.95%25.39%

 From the above figure it can be said that, the growth rate of total operating expenditure of EXIM Bank Ltd. and IBBL is fluctuating year by year.

Earning Per Share:

Table no: 44                                                                                              Amount in Taka

EXIM Bank Ltd.62.2060.8248.6243.4843.45

 Source: Annual reports of IBBL & EXIM Bank Ltd. 2003-2007

Earning Per Share situation of EXIM Bank Ltd. and IBBL:

Among two banks earning per share (EPS) of IBBL is more stable and greater than EXIM Bank. On the other hand the EPS for EXIM bank is not satisfactory and also decreasing year by year.

Return on Assets (ROA)

Table no: 45                                                                                        Amount in Million

EXIM Bank Ltd.1.23%1.56%1.62%2.00%1.73%

Source: Annual reports of IBBL & EXIM Bank Ltd. 2003-2007

Return on Assets (ROA) situation of EXIM Bank Ltd. and IBBL:

Return on assets ratio position of EXIM Bank Ltd. is almost stable and in a good level but IBBL’s position is not good enough.

Volume of Investment:

Table no: 46                                                                            Amount in Million

EXIM Bank Ltd.12289.1219332.4426046.3432641.2740195.24

 Source: Annual reports of IBBL & EXIM Bank Ltd. 2003-2007

From the above figure, I am able to say that though the volume of investment is satisfactory for EXIM Bank Ltd but comparing with IBBL, the amount is very lower. IBBL has a very large volume of investment.

The Growth rate comparison of volume of investment between IBBL and EXIM Bank Ltd.:

                    Table no: 47

EXIM Bank Ltd.48.22%39.55%47.79%20.67%

 From the above figure it can be said that, the growth rate of volume of investment of EXIM Bank Ltd. and IBBL is fluctuating year by year.

Comparison of Mode wise Investment:

Table no: 48                                                                                        Amount in Million

Investment ModeIBBL (2007)EXIM Bank Ltd.  (2007)
Hire purchase under Shirkatul Meelk50,20134.64%
Purchage Negotiation11,0407.62%37.1430.097%
Bai salam1,1530.79%
Wazirat bill wakala1847.8934.83%
izara bil baia15,514.23440.59%
TR (mib/mura/mpi)6,638.09317.37%
investment a/c credit card15.5050.0405%

Source: Annual Reports of EXIM Bank Ltd. and IBBL 2007

In this comparison we can see that IBBL and EXIM Bank Ltd. both use different modes of investment. EXIM Bank Ltd.  mostly concentrates in three main modes as Izara Bil Baia (40.59%), Bai-Muazzal (29.50%) and TR (17.37%). On the other hand IBBL prefers Bai –Murabaha (50.95%) and Hier Purchase under Sherkatul Melk (34.64%).

Comparison on the basis of sector-wise investment

Table no: 49                                                                                     Amount in Million

Investment SectorIBBL (2007)EXIM Bank Ltd. (2007)
Industrial Sector78,78854.37%11,53928.96%
Commercial Sector43,87730.28%12,08230.32%
Real estate investment6,4854.47%1,9144.80%
Transport sector2,6561.83%1,0422.61%
Service industries and SME8,63021.66%

 Source: Annual Reports of EXIM Bank Ltd. and IBBL 2007

In this comparison, we can say that, IBBL is more concentrated in Industrial sector than EXIM Bank Ltd. On the other hand both the bank involve in the commercial sector almost in a same position.

Chapter Eight



All things around us are changing at an accelerating rate. Today is not like yesterday and tomorrow will be different from today. The Islami Bank Bangladesh Limited should adopt some of the industry best practices that are not practiced currently. These are:

IBBL should concentrate more on increasing their profit amount from investment.

IBBL should increase investment in agricultural sector because Bangladesh is an agricultural country.

IBBL should increase its investment in public sector, i. e. the bank should involve profitably in this sector for the development of the bank as well as the economy.

Bank should take corrective actions to reduce its upward trend of outstanding amount of investment and careful to take investment decision.

Attempt should be made for an improved information system within the bank and within the investment clients unit.

Consider offering growth pre-investment and post investment counseling to both potential and existing investors according to their needs.

Repayment behavior of different types of clients play a important role not only in the successful implementation of investment plan but also in the cost-benefit analysis for the banks, there is need to analysis in detail the repayment behavior at micro level. Such a study provides proper guidance for the banks to be associated with the clients at various stages of utilization of investment and its repayment.

Investment plan commitment should be included in the budget of each branch of the bank and progress should be regularly monitored.

 Bangladesh is rural base country. So IBBL should increase their investment in rural area.

The productivity of the bank may be raised by better funds management and portfolio management improving recycling of funds and developing other income from the business activities of the bank

It could increase its advertising as well as awareness regarding Islamic investment modes.

The authority of IBBL should introduce more innovative and modern customer service.

 Investment should be provided in the SMEs sector for developing entrepreneur investment.

Investment power should be decentralized.

IBBL should try to improve the deposit investment ratio for higher productivity.

 IBBL should encourage the people for Mudaraba & Musharaka Investment.

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

Inclusion of more subjects based on the Quran and Sunnah in the Training courses of the IslamiBankTraining & ResearchAcademy in order to develop human resources having morally.

The 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.

IBBL should gain success in the programs like “Poverty Alleviation and “Self Reliant” specially in rural areas, this bank should provides investment facilities on the basis of individual.

Chapter Nine




Major Findings:

The investment of all modes is increased but the investment of Musharaka is decreased lack of faithful or trust and efficient client. But the overall investment growth of the bank may be attributed to the trust given to promote investment sectors.

The bank rural development scheme (RDS) investment policy has been drawn to take care of the requirement of all the economic groups of the society under Mudaraba deposits towards productive investments.

IBBL through its steady progress and continued success has earned reputations and has become the leading private bank in the country. The volume of investment of this bank has been increasing day by day. The network of the branches has widened and the investment portfolio of the bank has been diversified.

Portfolio of investment and investment policy have been specially tailored to achieve balanced growth and equitable development though diversified investment operations particularly in the priority sectors and in the less develop areas of the national economy.

Lack of proper knowledge of the clients about the modes of investment.

The existing clients sometimes do not properly furnish their past business performance and bank’s income.

Large portion of investment is invested by mode of Bai-Murabaha that is 53.26% because it is more profitable than other modes of investment.

Total investment of IBBL is increasing.

There are limited scopes to deal women entrepreneurs and professionals for making investment by women interpreters.

Islami Bank Bangladesh Limited has a very low concentration about investing in Agricultural and Transport sectors of Bangladesh.

The bank has special investment schemes for its clients.

The profit from investment is satisfactory in relation with the volume of investment.

Mode wise investment performance of Islami Bank Bangladesh Ltd is satisfactory.

The bank mostly invests in the industrial and commercial sector.

For the industrial sector, Islami Bank Bangladesh Ltd. has the highest concentration in Textile Industry for making investment.

Due to lack of manpower, their banking activities are seriously hampered.

The bank mostly invests in private sector than public sector.

The Bank’s investment to deposit ratio is fluctuating year to year and in the year 2007 the Bank has disbursed the highest amount of loan and advances, which is 87.13%.

The company’s net profit margin is fluctuating year to year or over the time and the Bank has generated maximum amount of net profit margin in the year 2005, which is 52.53% and lowest amount of margin in 2006 which is 23.27%. So I can conclude that the Bank generates net profit in each year on an average rate of above 23% of the total operating income.

The Bank’s effectiveness to generate return by using its available assets is increasing year to year and the Bank has generated maximum amount of ROA in the year of 2007 and lowest amount of ROA in the year 2005.

 The Bank has generated maximum amount of ROE in the year 2005, which is 13.51% but after that, the Bank’s ROE is decreasing year to year, which is not favorable for the bank.

Findings on the basis of Shariah Based Islami Bank:

Islamic Banking is a new phenomenon in our country during last two decades. So majority of our people have no proper knowledge about the activities of Islamic Banking as well as its investment mechanism hamper large scope of investment of IBBL.

Because of improper insufficient application of Islamic Banking rule in our country, the investment operations of IBBL can’t run smoothly.

This Bank can’t invest in all economic sectors, which are prohibited by the law of Islam.

Profitable investment portfolio of IBBL requires forsightment and clear    investment knowledge according to Islamic Shariah. But some times IBBL can’t invest its assets in proper portfolio due to insufficient and unskilled manpower in this regard. As a result, there is a large amount of being idle and thus potential profit is not increasing.

Sometimes investment operations of IBBL are hampered due to hypocritical nature of people.

IBBL has no strong potential activities to increase motivation its present potential investment client.

Proper documentation under Islamic rules sometimes creates serious problems for the clients.

In our country there are no prescribing Islamic banking guidelines from bank authority (Bangladesh Bank).

Comparative findings:

EXIM Bank’s Return on Asset is more than IBBL.

IBBL yet holds the highest profit earning bank among the private commercial banks in the country.

IBBL has been maintaining strong liquidity position than EXIM Bank Ltd.

 IBBL has their own network server but EXIM Bank don’t have own network server.

Both are weak for providing highest customer service like other foreign banks.

Both have low concentration in promotional activities.

Both have low concentration about investing in agricultural sector.

EXIM Bank Ltd.  mostly concentrates in three main modes as Izara Bil Baia, Bai-Muazzal and TR. On the other hand IBBL prefers Bai –Murabaha and Hire Purchase under Sherkatul Melk.

IBBL is more concentrated in Industrial sector than EXIM Bank Ltd. On the other hand both the bank involve in the commercial sector almost in a same position.

The modes of investment used by IBBL and EXIM Bank Ltd. are not similar.

IBBL & EXIM Bank Ltd., both have the highest concentration in Textile Industry for making investment.

The profit from investment is not that much satisfactory in relation with the volume of investment for both of the bank.


Islami Bank Bangladesh Limited (IBBL) is the first bank in the private sector based on the principal of Islamic Shariah to work with other conventional banks operating in the economic arena. of Bangladesh.

As regards the overall investment position of the Islami Bank Bangladesh it may be concluded that, since the beginning of banking activities the bank has not invested any amount in any project on the Mudaraba mode of investment. The investment position of the bank since 1983 shows that investment under the Musharaka mode of investment constitutes a very insignificant percentage of the total investment. The bank invested a major portion of its funds under the Murabaha & Bai-Muajjal mode of investment. In spite of the fact that the bank invests its fund towards various sectors of the nation’s economy still the sector-wise investment position indicates that the bank concentrates much in investing towards industrial sectors.

While interviewing officers in the investment department it was informed that in order to make investment under Musharaka mode of investment honest and sincere entrepreneurs required. They experienced a hard time in many cases while introduced financing under the Musharaka mode.

Once upon a time, most of the people didn’t understand interests-free banking system. They never thought that it is possible to provide banking facilities without interest but in passage of time, now it is clear that in Islam there as a banking procedure though profit / loss sharing basis. In course of time problems have reduced but not delaminated. This bank is trying to operate activities according to Islami Shariah. If the government becomes conscious to solve these problems and the banker become cordial and cooperative, the problems may be reduced to a greater extent.


Islami Bank Bangladesh Annual Report 2010

Islami Bank Bangladesh Annual Report 2009

Islami Bank Bangladesh Annual Report 2008

Brochures Of Islami Bank Bangladesh

Branch Managers’ Conference Book 2008

 Various types of publications of IBBL.

Various lecture sheets of IBTRA

Investment Manuals, Islami Bank Bangladesh Ltd. (IBBL)

Islami Bank Bangladesh Limited. http://www.islamibankbd.com


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