Internship Report on Investment Operation Of Islami Bank Bangladesh Limited
Subject: Business, Finance | Topics:

Report Origin

As a mandatory requirement of Bachelor of Business Administration (BBA) program, this report entitled – “General Banking, Investment and Foreign Exchange Operation Of Islami Bank Bangladesh Limited” – is a connived depiction of the two months long internship program at Islami Bank Bangladesh Limited, Shyamoli Branch.
The organization attachment started July 1, 2008 and finished on August 31, 2008. Our topic of the paper (General Banking, Investment and Foreign Exchange Operation of Islami Bank Bangladesh Limited).
1.2 Purpose
The purposes of this report cognate the internship purpose. The internship objective is to gather practical knowledge and experiencing the corporate working environment with the close approximation to the business firm and the experts who are leading and making strategic decisions to enhance the growth of a financial institution. To this regard this report is contemplating the knowledge and experience accumulated from internship program. With the set guidelines and proposal by the University and with the kind advices of the organization and the internship supervisor, this report comprise of an organization part and a project part.
The prime objective of organization part is:
To present an overview and brief introduction of Islami Bank Bangladesh Ltd.
The prime objectives of project part are:
Give a very brief overview of the General Banking, Investment and Foreign Exchange operation of IBBL.

1.3 Scope
The scope of this report is limited to the overall description of the company, its services and its general banking, investment and foreign exchange operation analysis. The scope of the study is limited to organizational setup, functions, and performances Since Islami Bank Bangladesh Limited is still in its growth stage in Bangladesh; it has still to go a long way to achieve its destination. The report will mainly focus on what criteria IBBL is maintaining before approving the General banking, investment and foreign exchange facility.

1.4 Methodology
Both the primary as well as the secondary form of information was used to prepare the report. The details of these sources are highlighted below.
Primary Sources:
1 Customer and historical data of customers.
2 Interviews with the officers as well as the Trainers and the course coordinator of IBTRA for our internship course.
Secondary Sources:
1 Internal Sources
► IBBL Manual
► IBBL Annual Report
► Business Principal Manual
► Business Instruction Manual.

2 External Sources
► Different books and periodicals related to the banking sector
► Bangladesh Bank Circulars
► Newspapers
► Website information

Data collecting instruments:

In-depth interview

► during the exploratory research, in-depth interviews were conducted with Principle Officers, officers, probationary officers and customers.

1.5 Limitations
• As per Bank’s compliance, as an internee we were unable to obtain indispensable experiences of different departments.
• Details of many aspects of the services of Islami Bank Bangladesh Limited have been skipped in this report due to various constraints, including time and space, security reason.
• One of the main barriers in writing this report was the confidentiality of data. Though we had access to lot of information regarding the performance of the bank, we were unable and not authorized to use this information due to legal restrictions.

Chapter 2: Emergence of Islamic Banking

2.1 What is Islamic Banking

Islamic banking has been defined in a number of ways.
The definition of Islamic bank, as approved by the General Secretariat of the OIC, is stated in the following manner. “An Islamic bank is a financial institution whose status, rules and procedures expressly state its commitment to the principle of Islamic Shariah and to the banning of the receipt and payment of interest on any of its operations”(Ali & Sarkar 1995, pp.20-25).
Shawki Ismail Shehta viewing the concept from the perspective of an Islamic economy and the prospective role to be played by an Islamic bank therein opines: “It is, therefore, natural and, indeed, imperative for an Islamic bank to incorporate in its functions and practices commercial investment and social activities, as an institution designed to promote the civilized mission of an Islamic economy” (Ibid).
Ziauddin Ahmed says, “Islamic banking is essentially a normative concept and could be defined as conduct of banking in consonance with the ethos of the value system of Islam” (Ibid).

It appears from the above definitions that Islamic banking is systems of financial intermediation that avoids receipt and payment of interest in its transactions and conducts its operations in a way that it helps achieve the objectives of an Islamic economy. Alternatively, this is a banking system whose operation is based on Islamic principles of transactions of which profit and loss sharing (PLS) is a major feature, ensuring justice and equity in the economy. That is why Islamic bank are often knows as PLS bank.
For an expanding economy, a developed and efficient banking system is indispensable. Among others, it helps transfer of financial resources from surplus units to deficit units and, hence, helps accelerate the pace of development by securing uninterrupted supply of financial resources to people engaged in numerous economic activities. The tremendous development that the world economy has experienced in the last few decades was contrib¬uted by several factors among which, growing institutional supply of loan able funds must have played the pivotal role. The role of banking is comparable to what an artery system does in the human body. Both commercial banks and other development financial institutions provide short-, medium-, and long-term credits to businesspersons and entrepreneurs who usually take the lead in ventures of economic development.
Institutional supply of credit has been made possible by a system of financial inter-mediation organized in a way where conventional banks collect small savings from the public by offering them a fixed rate of interest and advancing the loan able funds out of the deposited money to enterprising clients charging relatively higher rates of interest. The margin between these two rates is the bank’s income. In addition, banks also provide many other services to the public for which it receives service charges.
Despite the outstanding contribution of the conventional banking system (interest-based), several ancient and modern economists are critical about its efficiency level. Some economists consider the role of interest in the conventional banking mechanism as a major negative factor that contributes to cyclical fluctuations in the economy (Minsky 1982). Specifically, the ineffectiveness of interest rate as a stabilization tool during the period of the Great Depression is a case to note. This eventually called for Keynesian prescription of government intervention (Keynes 1964). Similar concern was expressed in a story published in Newsweek regarding Henry Kissinger, the former Secretary of State of USA. To quote, “The instability has persisted and the uncertainty has continued. After going through the throes of painfully high levels of inflation, the world economy has experienced a deep recession and unprecedented rate of unemployment, complicated further by high level of real interest rates and unhealthy exchange rate fluctuations” (Newsweek 1983). More recent concern over the potential instability of the world monetary and financial system was expressed by Maurice Allais, a Nobel Laureate, who called for an urgent reform of the World Economic Order (Allais 1993, pp.13-16). Others vehemently oppose the argument for using rate of interest as a stabilizing tool in the economy (Saud 1980, p.88). This called for the emergence of a new system of banking capable of tackling new challenges that the present world economy, particularly the financial sector, has been facing. In response, though not exactly to that exigency but for quite a few other reasons, the second half of the twentieth century witnessed a distinctly separate line of thinking on banking. This was institutionalized at the end of third quarter and subsequently emerged as a new system of banking called Islamic Banking {also called Profit-Loss-Sharing Banking (PLS)}. The world has now been expe¬riencing operation of as many as 250 Islamic banks and financial institu¬tions in more than 50 countries, Muslim and non-Muslim.
There are religious as well as economic reasons, which have contributed to the emergence of PLS-banking as an alternative to its conventional counterpart. It is the prohibition of ‘Riba’ in the Quran that, according to the proponents of the PLS-system, was the source of inspiration for establishing banks in line with Islamic Shariah (Muslehuddin 1987, pp.24-27). The basic intention behind establishing Islamic banks was the desire of Muslims to reorganize their financial activities in a way that do not contradict the principles of Shariah and enable them to conduct their financial transactions without indulging into Riba (Ahmad 1992). These writers consider rate of interest in the conventional banking mechanism synonymous to Riba, the term as used in the Quran [2:275; 30:39]. One of the reasons for this is that the outcome of the productive effort is uncertain, and so interest necessarily involves an element of Gharar, that is, uncertainty (Chapra 1985, p.64). On this religious ground, proponents of the PLS-system urge the Islamic community to avoid all transactions with institutions that are interest-based.
The economic reason derived from a verse of the Quran providing inspiration to devise an interest-free financial system has been substantiated in the way that interest, instead of increasing wealth, reduces it [30:34]. The primary reason of why the Quran has taken such a hard approach towards interest is that Islam stands for establishing a just economic system free from all kinds of exploitation (Chapra 1985). Further, Muslim economists consider depression and stagflation very often found in the capitalist world as an outcome of the financial system based on interest (Rahman 1976).

2.2 Emergence of Islamic Banking All Over the World:
Thus, Islamic banking emerged as a response to both religious and economic exigencies. While religious exigency calls for avoiding any transaction based on interest, economic exigencies, on the other hand, provide a new outlook to the role of banking in promoting investment productive activities, influencing distribution of income and adding stability to the economy. Islamic banking is thus perceived as an improved system in all dimensions.

The first attempt
Interestingly, the concept of Islamic Banking is several decades old. The first attempt to establish an Islamic financial institution took place in Pakistan in the late 1950s with the establishment of a local Islamic bank in a rural area (Wilson 1983). Some pious landlords who deposited funds at no interest, and then loaned to small landowners for agricul¬tural development initiated the experiment. The borrower did not pay interest on the credit advanced, but a small charge was levied to cover the bank’s operational expenses. The charge was far lower than the rate of interest. Although the experience was encouraging, two main factors were responsible for its failure. First, the depositors’ landlords regarded the deposits as a one-time event. With the increasing number of borrow¬ers the gap between available capital and credit demanded was huge. Secondly, the bank staff did not have complete autonomy over its operation; depositors showed considerable inter¬est in the way their money was lent out (Ibid).

The second attempt
The second pioneering experiment of putting the principles of Islamic banking and finance into practice was conducted in Egypt from 1963 to 1967 through the establishment of the Mitt Gamer Savings Bank in a rural area of the Nile Delta. The experiment com¬bined the idea of German savings banks with the principles of rural banking within the general framework of Islamic values (Ahmed 1992). The bank’s operation was based on the same Islamic principle i.e. no-interest to the depositors or from the borrowers. Unlike the Pakistani bank, the borrower had to have deposits in the bank in order to request a loan. The experiment soon became success¬ful; more branches were opened in different parts of the country, and the amount of deposits increased. Hence, what started as a single bank operation expanded to form a network of local savings banks? Although the project made a good start and initial results were more than encouraging, it suffered a setback owing to changes in the political atmosphere.

Nevertheless, the project was re¬vived in 1971 under the name of Nasser Social Bank. This was the first Islamic bank in an urban setting based in Cairo. The bank is a public authority with an autonomous status. Its purpose was mainly to promote social concerns such as granting of interest-free loans for small projects on a profit-loss-sharing basis, and assist¬ance to the poor

And needy students for university and higher education. Because of these social functions, Nasser Social Bank was granted an exemption from the Banking and Credit Law of 1957 in its initial stages. The bank was originated under the Ministry of Treasury but it is now functioning under the Ministry of Social Welfare and Insurance. Its capital comes from the funds allocat¬ed by the President from extra budgetary resources, appropriation from the state budget, and contribution from the Ministry of Awqaf (Ahmed 1992). The principles of operation of the Naser Social Bank are very similar to those of the Mitt Gamer Savings Bank. However, the latter offers a full range of normal banking services and a wide range of investment activities through equity participation (Asker 1987, pp.18-35)

Tabung Hajji: a successful attempt
Islamic banking, with a very different approach contemporary to that in Egypt, emerged in Malaysia. It was a financial institu¬tion developed for the pilgrims of Malaysia. These institutions were established in response to what was the contention of the Malaysian Muslims that money spent on pilgrimage must be clean and untainted with ‘Riba’. Since this was not possible by depositing money with the ordinary banks, a special financial institution had to be created. Consequently, Pilgrims Saving Corporation was established in 1963, which was later on incorporated into the Pilgrims Management Fund Board (Tabung Hajji) in 1969 (A. Ahmad 1993)

Other attempts
Next to follow was the Dubai Islamic Bank in 1975. The Dubai Islamic Bank is a public limited company having its office at Dubai, U.A.E with capital of 50 million Dirhams. Since then, a number Islamic banks and financial institutions have been estab¬lished in different parts of the world and have been functioning successfully.
A significant development in Islamic banking has been the granting of an Islamic bank license in Saudi Arabia to the fifty-year old “Al-Rajhi Company”, a firm noted for its currency, exchange and commercial activities, whose assets exceed $5 billion. The firm started operation in 1985 under the name of “Al-Rajhi Banking Investment Corporation” and has since developed active relationships with major manufacturing and trading companies in Europe and several U.S. corporations. The emerging success of Al-Rajhi in operating profitably in different regions of the world has increased pressure on the Saudi government to go for full-fledged Islamic banking (Mangla,Uppal&Swamy1988,p.54).
An example of multi-cooperation at the government level in the field of Islamic banking is the Islamic Development Bank, which was founded in 1975 as a multi-national corporation by several Muslim countries. The purpose of the bank is to support social and economic development in Muslim nations within an Islamic Framework. The subscribers of the capital are the founder govern¬ments and, as such, it was established by government treaty.

In addition, an Islamic bank/investment company was established in Bahamas in 1977 as a multi-national holding company under the name of Islamic Investment Company, ICC limited. Its purpose was to establish ‘Mudaraba’ (partnership companies) in various parts of Islamic countries. The company has established two ‘Mudaraba’ subsidiaries in Sharjah and Pakistan.

A second example of Islamic banking in the West comes from Luxembourg, where the Islamic Banking System International Holding was established in 1978 as a joint-stock company. Its purpose was to establish international Islamic banks in different parts of the western countries where there are communities of Muslims, and to participate in investment projects in Islamic and non-Islamic countries. The company’s investment operations are spread over different parts of the world. As a holding company, it established a new affiliated company in London in June

1983 under the name of Islamic Finance House, and another in Denmark in 1982 under the name of the Islamic Bank International of Denmark. Dar-al-mal-al-Islami (DMI), based in Geneva, was established in 1981. DMI aims to foster an Islamic financial system based on equity and social justice by incorporating three types of insti¬tutions – banking, investment and insurance. Thus, DMI may be considered as a major multi-national company, the activities of which consist of Islamic investments, Islamic solidarity (insur¬ance) and Islamic banking operations (Ashker 1987, pp.18-35). DMI group has adopted a high profile and ambitious campaign to open an Islamic bank and investment in over thirty countries.
The second major group is the Kuwait Finance House (KFH). It was established in 1978. The Kuwait government and the remainder by private Kuwait investors own Forty-nine percent of the KFH. Total value assets of KFH at the end of 1987 were $3.92 billion with a deposit of $3.62 billion. The source of KFH’s liquidity is cheap deposits from faithful Muslims. The group has concentrated on large scale project financing, particu¬larly in real estate. The KFH does have a minimum account size and, therefore, it could be argued that the institution only caters to the richer member soot The society. Another dynamic Islamic banking conglomerate is the ‘Al-Baraka’ group, which operates banks, investment companies, and finan¬cial advisory and management companies in more than a dozen coun¬tries. It launched its activities only in 1982, but the group now has a total asset of over $2.7 billion. It is considered to be one of the fastest growing Islamic enterprises. The group has operations in Tunisia, Sudan, Bahrain, Turkey, and Malaysia. It is the first group to obtain a license to launch Islamic banking in London.

Complete Islamization Efforts
A development of complete Islamization of banking at national levels had been gaining momentum since the second half of the 1970s. The movement took basically two forms. First, an attempt was made to establish Islamic financial institutions side-by-side with traditional Banking. In such attempts, two types of institutions were evolved: Islamic banks were established mostly in Muslim countries; and Islamic investment and holding companies started operating in some Muslim but mostly in non-Muslim countries. These institutions claimed to be operating without interest in their transactions and competed with conventional banks to attract deposits. The majority of these institutions were established through private initiatives. Second, an attempt was made to restructure the whole financial system of the economy in accordance with the teachings of Islam. This second approach was accomplished in two distinct ways, as exemplified by the changes in Iran and Pakistan. Complete Islamization efforts of some leading countries are now discussed.

The process of Islamization of Islamic banking in Iran has proceeded in three distinct phases. Nationalization, restructuring, and reorganization of the entire banking system characterized phase one taking place between 1979 and 1982. External and internal developments did not allow the policy makers to develop a coherent plan for Islamization of the banking system, although various piecemeal attempts were made towards this objective (Khan & Mirakhor 1989).

The second phase began in 1982 and lasted until 1986. It was a phase primarily characterized by adoption of legislative and administrative steps in order to implement a clearly articulated model of Islamic banking (Iqbal & Mirakhor 1987, p.106). The law for Riba-free banking was passed in August 1983, giving a very short deadline of one year to the banks to convert their deposits in line with Islamic law and their total operations within three years from the date of the passage of the law. The third phase, which continues till now, began in 1986. This phase defines the role of the Islamic banking system differently from the earlier phases. The system is now expected to be an integral part of the Islamic government, and thus, a direct instrument of its policies. This development is a direct result of the political debate within Iran surrounding the proper role of the government in an Islamic economy. This debate culminated in a ruling by Imam Khomini, which confirmed a highly activist role for the central government in shaping the structure of the Iranian economy and legitimized a trend in the interventionist posture of the government vis-à-vis the economy. The ruling also indirectly affirmed the use of the banking system as an instrument for promoting social and economic development. The banking sector has been used as an instrument to restructure the Iranian economy. The restructuring was essentially directed towards the shifting of financial resources from services and consumption to the production sector in four ways. First, credit to the service sector, which constituted some 55 percent of the GDP (1984-85), has been drastically reduced to halt its expansion in the short-run and curtail its size in the mid-term. Second, using all available modes of Islamic finance to help farmers to improve and expand production has used bank credit to encourage the growth of the agricultural sector. Coupled with substantial government subsidies for seed, fertilizer, machinery, and crop insurance, the credit policy of the banking system is aimed at reviving the agricultural sector. Third, Islamic banking has been used to create incentives for the development of a co-operative sector spanning agriculture, industry, and trade. Fourth, the banking system, in partnership with the government, undertakes to finance large industrial projects and investment in social overhead capital (Mirakhor & Zaidi 1988, p.3).

Pakistan adopted a policy of gradual transformation of its banking system from February 1979 after several years of study and preparation by the government-appointed Council of Islamic Ideology (CII). The process started when the President of Pakistan announced that interest was to be removed from the economy within a period of three years. Three of the specialized credit institutions–the House Building Corporation, National Investment Trust, and Mutual Trust Funds of Investment Corporation of Pakistan–were to remove interest from their financing operations.

Following the directive issued by the government in January 1981, separate counters were opened in the commercial banks for accepting deposits on a PLS basis. Commercial banks were instructed to create separate accounts for deposits in their interest-based operation and those received on the PLS basis. A series of directives were issued in 1981 by the State Bank of Pakistan permitting commercial banks to issue non-interest based credit to finance exports and imports of commodities, and to provide financing for trading operations and housing. In June 1984, the government announced discontinuation of dual window operations of the banking system within one year. As a result, all financial operations of the banking and financial system, except the foreign currency deposits which continue to earn fixed interest, were brought under the non-interest based mode so financing. However, along with the change of regime the progress of Islamic banking has been constrained by lack of operating Islamic ethical norms in the business environment. The posture of the policy makers toward Islamic banking in Pakistan has been marked by a great deal of caution. The banking community has shown a reluctance to engage in medium- or long-term industrial financing on a profit-sharing basis. Islamic banking in Pakistan appears to be at a crossroads, and if there is to be further progress the regulatory and legal conditions must be such that the system will have a fair chance to perform as expected.

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 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.
Their professional activities were reinforced by a number of Muslim entrepreneurs working under the aegis of the then Muslim Businessmen Society (now reorganized as Industrialist & Businessmen Association). The body concentrated mainly in mobilizing equity capital for the emerging Islamic bank. At last, the long drawn struggle to establish an Islamic bank in Bangladesh 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. Later, other three Islamic Banks were established in the country.

2.3 Islamic Banks in Bangladesh:
Islami Bank Bangladesh Limited (IBBL) is considered to be the first interest free bank in Southeast Asia. It was incorporated on 13-03-1983 as a Public Company with limited liability under the companies Act 1913. The bank began operations on March 30, 1983.

IBBL is a joint venture multinational Bank with 63.92% of equity being contributed by the Islamic Development Bank and financial institutions like-Al-Rajhi Company for Currency Exchange and Commerce, Saudi Arabia, Kuwait Finance House, Kuwait, Jordan Islamic Bank, Jordan, Islamic Investment and Exchange Corporation, Qatar, Bahrain Islamic Bank, Bahrain, Islamic Banking System International Holding S. A., Luxembourg, Dubai Islamic Bank, Dubai, Public Institution for Social Security, Kuwait Ministry of Awqaf and Islamic Affairs, Kuwait and Ministry of Justice, Department of Minors Affairs, Kuwait. In addition, two eminent personalities of Saudi Arabia namely, Fouad Abdul Hameed Al-Khateeb and Ahmed Salah Jamjoom are also the sponsors of IBBL.

ICB Islamic bank often called the second Islamic bank in Bangladesh. Commenced banking business as a scheduled bank on May 20, 1987. this bank started it’s banking business with the name “ Al Baraka Islami Bank Limited”. Later its name was changed to “Oriental Islami Bank Limited”. But now ICB has bought the bank and it’s name has been changed to “ICB Islamic bank limited”. Apart from extending conventional commercial banking facilities to its customers, the bank has also given substantial financial support to the development of industrial and real estate projects.

Al-Arafa Islami Bank Bangladesh Limited commenced its business as a scheduled bank on September 27, 1995. The Bank follows the Shariah principles in investment and invests its funds under Mudaraba, Musharaka, Bai-Muajjal, Bai-Salam, etc.

Social Investment Bank Limited is another bank guided by the Islamic principles. It started its journey in November 1995.

Chapter 3: Introduction To IBBL

3.1 Islami Bank Bangladesh Ltd: At a Glance:
Bangladesh is one of the largest Muslim countries in the world. The people of this country are deeply committed to Islamic way of life as enshrined in the Holy Qur’an and the Sunnah. Naturally, it remains a deep cry in their hearts to fashion and design their economic lives in accordance with the precepts of Islam. The establishment of Islami Bank Bangladesh Limited on March 13, 1983, is the true reflection of this inner urge of its people, which started functioning with effect from March 30, 1983. This Bank is the first of its kind in Southeast Asia. It is committed to conduct all banking and investment activities on the basis of interest-free profit-loss sharing system. In doing so, it has unveiled a new horizon and ushered in a new silver lining of hope towards materializing a long cherished dream of the people of Bangladesh for doing their banking transactions in line with what is prescribed by Islam. With the active co-operation and participation of Islamic Development Bank (IDB) and some other Islamic banks, financial institutions, government bodies and eminent personalities of the Middle East and the Gulf countries, Islami Bank Bangladesh Limited has by now earned the unique position of a leading private commercial bank in Bangladesh.
3.2 History:
Establishment of Islamic Development Bank (IDB) by the OIC member states in the year 1975 has been proved to be a break through in the expansion of Islamic Shari’ah based finance and specially banking throughout the world. As a founder member of IDB, the Government of Bangladesh also had the commitment to establish Islamic banks, which was reflected in
Different steps taken by the governments of the country. The OIC members consented to the proposals to introduce Islamic economy and banking in their respective countries held in the foreign ministers’ conferences in 1978 and 1980 in Dakar and Islamabad respectively.
In the year 1981, OIC in its 3rd summit held in Makkah approved the Proposition submitted by Bangladesh to introduce separate banking system following Islamic ideology. As per decision, the GOB sent representatives to the Middle Eastern countries to learn the existing banking systems in those countries.
In the private sector, the Islamic Economics Research Bureau (IERB) was the first organization that took active initiative in this regard. They arranged a national seminar on Islamic Economics and banking in the year 1979 and inspired by the discussion and the papers presented in the seminars, some local bankers formed ‘Islami Bank Working Group’. The IERB again arranged an international seminar in 1980. After the seminar, Dhaka based ‘Muslim Businessman Society’ (later renamed as ‘Industrialist and Businessmen Association’) under the leadership of renowned industrialist Abdur Razzaque Lasker, took initiative to establish an Islamic bank and applied to the government for permission. At this stage, the GOB provided necessary permission in the year 1983 and at last ‘Islami Bank Bangladesh’ was registered under Company Act 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.

3.3 Growth and expansion
Since its startup, IBBL is maintaining a steady growth in terms of profitability and geographical coverage. 80s may be termed as ‘Foundation Stage; during the 90s, the bank passed its ‘Early Growth Stage’ and during the first decade of the 21st century, its making ‘Rapid Growth’.

The vision of IBBL is to always strive to achieve superior financial performance, be considered a leading Islamic Bank by reputation and performance.
• To establish and maintain the modern banking techniques, to ensure the soundness and development of the financial system based on Islamic principles and to become the strong and efficient organization with highly motivated professionals, working for the benefit of people, based upon accountability, transparency and integrity in order to ensure stability of financial system.
• Try to encourage savings in the form of direct investment
Try to encourage investment particularly in projects which are more likely to lead to higher employment.

3.6 Islami Bank Mission Statement
“Islami Bank Bangladesh Limited – Serving you, the Right way”

3.7 Aims of IBBL
IBBL aims are —
1 To conduct interest-free banking.
2 To establish participatory banking instead of banking on debtor-creditor relationship.
3 To invest on profit and risk sharing basis.
4 To accept deposits on Mudaraba & Al-Wadeah basis
5 To establish a welfare-oriented banking system.
6 To extend co-operation to the poor, the helpless and the low-income group for their economic up liftmen.
7 To play a vital role in human development and employment generation
8 To contribute towards balanced growth and development of the country through investment operations particularly in the less developed areas.
9 To contribute in achieving the ultimate goal of Islamic economic system.

3.8 Objectives of Islami banking:
The primary objective of establishing Islamic banks all over the world is to promote, foster and develop the application of Islamic principles in the business sector. More specifically, the objectives of Islamic banking when viewed in the context of its role in the economy are listed as following:
• To offer contemporary financial services in conformity with Islamic Shariah;
• To contribute towards economic development and prosperity within the principles of Islamic justice;
• Optimum allocation of scarce financial resources; and
• To help ensure equitable distribution of income.

These objectives are discussed below.
Offer Financial Services: Interest-based banking, which is considered a practice of Riba in financial transactions, is unanimously identified as anti-Islamic. That means all transactions made under conventional banking are unlawful according to Islamic Shariah. Thus, the emergence of Islamic banking is clearly intended to provide for Shariah approved financial transactions.

Islamic Banking for Development: Islamic banking is claimed to be more development- oriented than its conventional counterpart. The concept of profit sharing is a built-in development promoter since it establishes a direct relationship between the bank’s return on investment and the successful operation of the business by the entrepreneurs.

Optimum Allocation of Resources: Another important objective of Islamic banking is the optimum allocation of scarce resources. The foundation of the Islamic banking system is that it promotes the investment of financial resources into those projects that are considered to be the most profitable and beneficial to the economy.

Islamic Banking for Equitable Distribution of Resources: Perhaps the must important objective of Islamic banking is to ensure equitable distribution of income and resources among the participating parties: the bank, the depositors and the entrepreneurs.

3.9 Functions OF IBBL
The functions of Islami Bank Bangladesh Limited are as under:
1 To maintain all types of deposit accounts
2 To make investment.
3 To conduct foreign exchange business.
4 To extend other banking services.

5 To conduct social welfare activities through Islami Bank Foundation.

3.10 Business Philosophy of IBBL

The philosophy of IBBL is to the principles of Islamic Shariah. The Organization of Islamic Conference (OIC) defines an Islamic bank as “a financial institution whose status, rules and procedures expressly state its commitment to the principles of Islamic Shariah and to the banking of the receipt and payment of interest on any of its operations”. The sponsor, perception is that IBBL should be quite different from other privately owned and managed commercial bank operating in Bangladesh, IBBL to grow as a leader in the industry rather than a follower. The leadership will be in the area of service, constant effort being made to add new dimensions so that clients can get “Additional” in the matter of services commensurate with the needs and requirements of the country’ growing society and developing economy.

3.11 Role and contribution of IBBL to Bangladesh Economy
Islami Bank Bangladesh Limited has many success stories of achievements. These are Summarized bllow:
IBBL is the pioneer institution for introduction of Islamic Banking in Bangladesh. The success of IBBL has imbibed other sponsors at home and abroad to establish Islamic Banking in Bangladesh. Four national, one international Islamic banks have since been established in the country. A private sector traditional bank has also established two full-fledged Islamic Banking branches. Several other existing and proposed traditional banks hove also expressed their intention to introduce Islamic Banking.
• 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 196 branches, located at important centers all over the country and spontaneous acceptance of those products by the people proves the superiority of Islamic banking.
• IBBL market share of deposit investment and ancillary business is steadily increasing.
• IBBL, though still a tiny bank, handles more than 10% of country’s export and import trade.
• Among the contemporary commercial Banks IBBL position is first in respect of mobilization of deposit, deployment of fund and earning profit.
• Investment in industrial sector occupies nearly 33% of IBBL 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.
• IBBL has introduced several other welfare oriented Investment schemes, such as Small Transport Investment Scheme, Small Business Investment Scheme, Agriculture Implements Investment Scheme, Poultry Investment Scheme, Household Durable Investment Scheme, Housing Investment Scheme etc.
• IBBL launched a Rural Development Scheme for providing finance to drown-trodden section of the populace- an area where no other Commercial Bank has extended any finance. IBBL’s mission is to reach to all 68,000 villages of the country as early as possible.
• IBBL has organized a good number of national and international Seminars on Islamic Banking and Economics. Importantly, IBBL sponsored a Seminar at Dhaka with a view to forming an Islamic Common Market.
• Due to constant persuasion of IBBL the Government has granted license for establishment of an Islamic Insurance Company. By now two (2) Islamic Insurance Companies have started business?
• IBBL has earned reputation in the country as a corruption free institution.
• IBBL is held in high esteem in the banking circle as a good managed bank.
• Under the leadership of IBBL, Bangladesh Association of Banks (BAB) has been formed. This is a platform to ventilate the standpoints on banking issues of the private sector banks. An IBBL has taken initiative to form an Association of Islamic Banks in Bangladesh for furtherance of the causes of Islamic banking.

3.12 Achievements:

National and international ratings of IBBL

IBBL past performances have been evaluated by Bangladesh Bank, several credit rating agencies home & abroad and by the local press.

IBBL World rating

As per Bankers’ Almanac (January 2001 edition) published by the Reed Business Information, Windsor Court, England, IBBL world Rank is 1771 among 3000 banks selected by them. This position was 1902 among 4500 selected banks as on January 1999 edition.
IBBL country Rank is 5 among 39 banks as per ratings made by the above Almanac on the basis of IBBL Financial Statements of the year 2001.

International Press

“In the midst of a difficult Banking system known to be plagued by high non-performing loans (NPLs), one could easily conclude that it would be difficult to find a bank that is different from norm. However, IBBL provides a refreshing change and is, thus, a pleasant surprise. Although it does not command the market share as the 4 public sector banks, IBBL, which claims to have little interference in lending from the government, has nonetheless, managed to find a niche market of its own-says the ‘BANK ATCH’ a New York based international Credit Rating Agency in its January 30, 1998 issue. “As a market leader offering banking services based on the Islamic rule of Shariah, IBBL’s profitability trend has been quite impressive. The Bank’s ability to keep its return on asset (ROA) well above the industry’s average reflected its resilience to possible shocks in the banking system. Concerns over massive NPLs and under provisioning are common amongst local banks. But this seems well resolved in IBBL. IBBL’s good performance and solid capital base have indeed provided refreshing change found within a banking system saddled and held back by huge NPLs” the above agency continued to comment in the same issue.

National Press

“It is one of a few local banks according to CAMEL (Capital, Assets, Management, and Earnings & Liquidity) rating made by the Bangladesh Bank. It holds the highest amount of liquidity among all banks and its ability to keep return on assets at 1.07 percent is well above the banking sector’s average of 0.33 percent”- The Financial Express, Dhaka commented in its issue of May 28, 1998.
“The Holiday” in its 29th August, 1997 issue carried out a report under the heading “Setting a precedence of sound banking” and commented “While the country’s banking system is burdened with bad debt portfolios and also suffers from a liquidity shortage, the Islami Bank Bangladesh Ltd. (IBBL) has created a unique precedence by improving its reserve and deposit positions substantially, making handsome profits, and offering attractive dividends to its share holders and depositors.”

Award and Prizes: International & National Perspective

IBBL was awarded for several times by international & national organisations. The Global Finance, a reputed London based quarterly magazine, awarded IBBL as the best bank of the country for the year 1999 and 2000.
IBBL has got the 2nd prize of National Export Fare for its pavilion of Service Organisation in 1985.

Membership of Different Organization / Chamber

1. Bangladesh Institution of Bank Management (BIBM)
2. The Institution of Bankers Bangladesh (IBB)
3. Bangladesh Association of Banks (BAB)
4. Bangladesh Foreign Exchange Dealers’ Association (BAFEDA)
5. Central Shariah Board for Islamic Banks of Bangladesh
6. International Chamber of Commerce- Bangladesh


1. International Association of Islamic Banks (IAIB), Jeddah, K.S.A.
2. Accounting and Auditing Organizations for Islamic Financial Institutions (AAOIFI), Manama, Bahrain.
3. General Council of Islamic Banks & Financial Institutions (GCIBFI), Manama, Bahrain (IBBL is a member of its Executive Council)
4. Society for Worldwide Inter-bank Financial Telecommunication (SWIFT)

Credit Rating Information and Services Ltd- CRISL (a joint venture rating agency of Rating Agency MalaysiaBerhad (RAM), JCR-VIS Credit Rating Company Ltd., Pakistan, Prime Commercial Bank Ltd., Pakistan and LocalCorporation/ Sponsors, Bangladesh) was engaged by the Bank.

The CRISL submitted its report on the financial year 2002, 2003, 2004, 2005 & 2006 and assigned A+ (AdequateSafety) for long term rating scale for 2002 & 2003, and upgraded the same to AA- (High Safety) for long termrating scale for 2004 & 2005 and further upgraded the same to AA (High safety) for long-term rating scale in 2006
Financial Institutions rated in this category are adjudged to be of high quality, offer higher safety and have highcredit quality. This level of rating indicates a corporate entity with a sound credit profile and without significantproblems. Risks are modest and may vary slightly from time to time because of economic conditions.
CRISL assigned ST-2 (High Grade) for short term rating scale for 2002 & 2003, and upgraded the same to ST-1 (Highest Grade) for 2004, 2005 & 2006.

Financial Institutions rated in this category means having highest certainty of timely payment. Short-term liquidityincluding internal fund generation is very strong and access to alternative sources of funds is outstanding, Safetyis almost like risk free Government short-term obligations.

3.14 IBBL Department

3.15 Board of Directors
The board of directors of Islami Bank Bangladesh Limited consists of 13(thirteen) directors. The members of the Board of Directors of the Bank hold very respectable positions in the society. The Members of the BOD are—

Name Designation
Prof. Abu Nasser Muhammad Abduz Zaher
Representative: Ibn Sina Pharmaceutical Industry Chairman
Janab Yousif Abdullah Al-Rajhi
Representative: Al-Rajhi Co. for Industry & Trade Industrial Division Vice Chairman
Moulana Zainul Abedin
Representative: Bangladesh Masjid Mission Vice Chairman
Janab Mominul Islam Patwary Representative: Maruf Foundation Director
Janab Kazi Harun-ar-Rashed Director
Engr. Md. Eskander Ali Khan Director
Abdul hameed Fouad Al Khateeb Director
Dr. A. K. M. Sadrul Islam Representative: Bangladesh Islamic Certre Director

Md. Shamsul Huda Director
Dr. Md. Shafiqur Rahman
Representative: Ibn Sina Group Investment Co. Ltd Director
Janab Wasim Ahmed

Representative: Islamic Development Bank Director

Janab Ahmed Mohammed Thani
Representative: Kuwait Awqaf Public Foundation Director
Janab M. Fariduddin Ahmed
Executive President, IBBL Ex-Office Director

3.16 Shariah council
Shariah Council of the Bank is playing a vital role in guiding and supervising the implementation and compliance of Islamic Shariah principles in all activities of the Bank since its very inception. The Council, which enjoys a high status in the structure of the Bank, consists of prominent ulema, reputed banker, renowned lawyer and eminent economist.

Members of the Shariah Council meet frequently and deliberate on different issues confronting the Bank on Shariah matters. They also conduct Shariah inspection of branches regularly so as to ensure that the Shariah principles are implemented and complied with meticulously by the branches of the Bank.

Members of Shariah Council:


Moulana Muhammad Kutubuddin
President, Baitush Sharaf Coplex, Chittagong

Moulana Delawar Hossain Sayedee
former Member of Parliament, Dhaka
Vice Chairman

Prof. Dr. Abu Bakr Rafique Ahmed
Pro- Vice Chancellor International Islami University Chittagong
Member Secretary

Principal Muhammad Serajul Islam
Ex. Principal Madrasha-E-Mesbahul Ulum, Motijheel, Dhaka
Member Additional Secretary

Mufti Sayed Ahmed
Head Mufti of Al Jamiatus Siddikiah Darul Ulum (Madrasha-e-Furfura Sharif), Dhaka

Abdur Raquib
Former Executive President of Islami Bank Bangladesh Limited

Muftee Shamsuddin (Zia)
Mufti & Muhaddis, Al-Jameatul Islamiah, PatiyaChittagong

Advocate Mujibur Rahman
Senior Advocate, Bangladesh Supreme Court

Moulana Abdus Shaheed Naseem
President, Bangladesh Quaran Shikkha Society

Dr. Hafez Moulana Hasan Muhammad Moinuddin
Chairman, Da`wah & Islamic Studies Department, Darul Eahsan University, Dhaka

Dr. Moulana A. S. M. Toriqul Islam
Associate Professor, Islami University, Kushtia

Dr. Md. Abdus Samad
Assistant Professor, Department of Arabic,
International Islamic University Chittagong, Dhaka Campus

3.17 High lights of this Bank
Pioneer in Islamic Banking running its entire operation based Islamic Shariah.
• Shariah Commercial Comprising of leading Ulama, Renowned Economist lawyers and Bankers of the country for constant supervision and guidance of the Banking operation.
• Never participated in the interest based money market operation.
• Never borrowed from any source either inside or outside the country.
• Trying to be present In respect of banking activities in all sphere of the Economy,
• A transparent and corruption free operation for the last 21years in a row.
Operating Result:
The Bank earned handsome amount of profit every year since its inception. Net profit before tax of the Bank as on 31, December 2001 was Taka 576.12 million as against Taka 330.24

Million during the preceding year.
The Board of Directors of the Bank has proposed 25% dividend for the shareholders for the Year 2002.The Bank declared 21% dividend for the shareholders during the year 1997, 1998,and 1999 and 20% during the year 1996,which were the highest compared to the dividend paid by other banks in the country. Rate of return on Equity of the Bank had always been satisfactory. It was high as 50.08% in 1990.
22.85%in 1996, 11.94% in 1997, 9.78% in 1998, 10.75% in 1999, 12.36% in 2000, 19.25% in 2001, 25% in 2002, 20% in 2003, 20% in 2004, 25% in 2005, 25% in2006, 25% in 2007 and The Board of Directors of the Bank in its 158th meeting held on 17.04.2008 recommended @ 25.00% Stock.
Dividend subject to approval of the shareholders in the ensuing 25th Annual General Meeting to be held on 29th August 2008.

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

Chapter 4: Bank Services

4.1 Foreign Exchange
Foreign trade can be easily defined as a business activity, which transcends national boundaries. These may be between parties or Government ones. Trades among nations are a common occurrence and normally benefit both the exporter and importer. In many countries, international trade accounts for more than 20% of their national incomes.
Foreign trade can usually be justified on the principle of comparative advantage. Accounting to this economic principle, it is economical profitable for a company to specialize in the production of that commodity in which the producer country has the greater comparative advantage and to allow the other country to produce that commodity in which it has the lesser comparative advantage. It includes the spectrum of goods, services, investment, technology transfer etc.
This trade among various countries causes for close linkage between the parties dealing in trade. The bank, which provides such transactions, is referred to as rendering international banking operations. International trade demands a flow of goods from seller to buyer and of payment from buyer to seller. And this flow of goods and payment are done through letter of credit (L/C).

The foreign trade handled by the Bank may be classified as under :
(i) Import Business
(ii) Export Business
(iii) Foreign Remittance
(iv) Necessary services relating foreign Business & Trade.
The achievement of Islami Bank in the area of foreign exchange business has been quite phenomenal. The Bank has been providing services to import and export trade and for repatriation of hard-earned foreign exchange of Bangladeshis living and working abroad and has by now, consolidated its position in these areas.

4.4 Investment
The special feature of the investment policy of the Bank is to invest on the basis of profit-loss sharing system in accordance with the tenets and principles of Islamic Shariah. Earning profit is not the only motive and objective of the Bank’s investment policy rather emphasis is given in attaining social good and in creating employment opportunities.
Pursuant to the Investment Policy adopted by the Bank, a ‘7-year Perspective Investment Plan’ has been drawn-up and put into implementation. The plan aims at diversification of the investment port-folio by size, sector, geographical area, economic purpose and securities to bring in phases all sectors of the economy and all types of economic groups of the society within the fold of Bank’s investment operations.
Accordingly, the plan envisages composition of the investment port-folio with 2.5% for agriculture and rural investment, 18% for industrial term investment, 13% for industrial working capital, 10% for housing and real-estate, 4% for transport and communication, 0.5% for electricity, gas, water and sanitation services, 2% for storage, 43% for import, export and local trade and trade related activities 1% for poultry and dairy,2% for Rural Development Scheme, 2.5% for other Special Scheme, 0.5% for Micro Industry and 1% for other productive purposes by the end of the plan period, i.e. the year 2002.
Further, in order to diversify investment portfolio, the Bank engaged itself in investment operations through special schemes introduced during the years. The Bank is planning to introduce yet other new investment schemes in addition to welfare-oriented Investment Schemes, Rural Development Scheme, Transport Investment Scheme, Car Investment Scheme, Small Business Investment Scheme, Doctors Investment Scheme, Household Durables Investment Scheme, Housing Investment Scheme and Agricultural Implements Investment Scheme etc. Besides, the Bank is financing various economic groups in different sectors in both urban and rural areas for enlistment of their economic condition.

4.5 Objectives and Principles
The objectives and principles of investment operations of the Bank are:
1 To invest fund strictly in accordance with the principles of Islamic Shariah.
2 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.

3 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.
4 To make investment keeping the socio-economic requirement of the country in view.
5 To increase the number of potential investors by making participatory and productive investment.
6 To finance various development schemes for poverty alleviation, income and employment generation with a view to accelerating sustainable socio-economic growth and enlistment of the society.
7 To invest in the form of goods and commodities rather than give out cash money to the investment clients.
8 To encourage social enlistment enterprises.
9 To shun even highly profitable investment in fields forbidden under Islamic Shariah and are harmful for the society.
10 The Bank extends investments under the principles of Bai-Murabaha, Bai-Muazzal, Hire Purchase under Shirkatul Meelk and Musharaka. The Bank is making sincere efforts to go for investment under Mudaraba principle in near future.

4.6 Investment Policy of IBBL
Investment operation of the Bank is of vital importance as the greatest share of total revenue is generated from it. Maximum risk is centered in it and the very existence of a Bank mostly depends on prudent mgt. Of its investment policy.
A sound well defined, well planned and appropriate investment policy frame work is a pre-requisite for achieving the goal of the Bank i.e. implementation and materialization of the economic and financial principles of Islam in the Banking area and justice in trade, commerce and industry and to build socio-economic infrastructure, create opportunity for income and sustained economic growth of the country.

4.8 Investment portfolio of Islami Bank Bangladesh ltd.
1. Port-folio Management
a) Port-folio Management of a Bank
1 Linear Programming (Maturity of Liability with the Asset).
2 Pull of fund approach.
3 Liability Management.

b) Importance of Portfolio Management, particularly for an Islamic Bank.
1 Importance of Money market.
2 Importance of Investment

Salient Features of Investment policy of IBBL.

a) If is an ideological Banking organization.
b) Firmly committed to implement & materialize the economic and financial principles of Islam the Banking arena.

a) To do away with disparity and establish justice in the trade, commerce and Industry.
b) To build socio-economic infrastructure, create opportunities for employment and income generation & poverty alleviation.
c) Contribute to the Socio-economic enlistment and sustained Economic growth of the country.
d) Strict observance of the Islamic Shariah Principles.
e) Investment to National Priority Sectors.
f) Investment to Trade, Commerce, Industry, Foreign Trade, IT, Small Scale Industries, Transportation, Service sector.

2. Other Features
1. Observance of the legal Investment Limit of the Bank (90% of total deposit).
2. Observance of Legal Investment Limit per client-50% of equity (50% funded, 50% non-funded).
3. Optimum utilization of Invest able fund.
4. Profitability of the Investment.
5. Safety & Security of the investment.

3. Composition of Portfolio
1. Money market port- folio (up to one year).
2. Capital Market portfolio (above one year).
3. General Investment Port-folio.

4. Strategies
1. Fort-folio having high return shall be preferred.
2. Lower risk shall get preference.
3. Flexibility in clearing R…R. case-to-case basis depending on the Risk, amount of investment, Nature of investment, etc.
4. Emphasis is given to collage & small industries, rural industries.
5. Export oriented Import substitute industries.
6. Labor-intensive industries.
7. Micro investment/small investment schemes.

5. Miscellaneous
(A) Investment port-folio_ (As on December, 07)

1 Total Deposit Tk.1743787 crore
2 Total Investment Tk. 656717 crore
3 Total overdue (OD) Tk.33431 crore
4 Total No. Of Deposit clients About – 35034 lac

(B) Project Investment Prot-folio (As on December, 07)
No. Of Projects
Bank Finance Self finance Total
Garments related 73 95 168
Textile related 88 11 99
Others 343 25 368

(C) Total Investment Amount (Taka in core)
IBBL cannot operate all investment moods under Islamic shariah because of some problems. That’s why IBBL only operates the following types of investment moods.
Industry (Term) 1218.13.00 (18.18%)
Industry (W/C) 1634. 10 (24.30%)
Special Schemes 394. 74 (5.17%)
Real Estate 523.26 (7.78%)
Trade & Commerce/others 2953.18 (43.92%)
Total 6723.41 crores

4.9 General Banking

1. General Banking: it includes
Mobilization of deposits.
a. Receipts and payment of cash.
b. Handling transfer transaction.
c. Operation of clearing house.
d. Maintenance of accounts with Bangladesh bank and payment order.
e. Collection of cheque and bill.
f. Issue and payment of Demand Draft, telegraphic transfer and Payment Order.
g. Executing customers standing instruction.
h. Maintenance of safe deposit lockers.
i. Maintenance of international 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. Islami Bank Bangladesh Limited 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 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)
8 Mudaraba Foreign Currency Deposit Account.
9. Mudaraba Monthly Deposit Account.
6. Mudaraba Moharana Account.

Chapter 5: General Banking

5.1 Bank accepts deposit
Bank receives deposit by different accounts.
Those are of 2 (two) types

A) Al Wadeah: – Current A/C is conducted under Al Wadeah system

B) Mudaraba mode: – Client – Sahib Al Mall Bank- Mudaraba.

Under this arrangement- profit distribution under agreement ratio and loss (if any) will be borne by Shaheb-Al-Maal.

5.2 Under Mudaraba mode
There are many accounts as under:
a) M S A – Mudaraba Savings Account
b) M H S A – Mudaraba Hajj Savings Account
c) MSB- Mudaraba Savings Bond
d) MSS – Mudaraba Special Scheme
e) MTDR- Mudaraba Term Deposit Receipt
f) MMPDS- Mudaraba monthly profit distribution scheme.
g) MMS – Mudaraba Manor Savings A/C.
h) MSNA- Mudaraba short notice A/C.

5.3 Who can open A/C ?
a) Persons over 18 (eighteen) years (except some restricted person)
b) Account of Club,
c) Association
d) Agent,
e) Govt.
f) Semi-Gov.,
g) Organization,
h) Liquidators,
I) Minor.
j) Married Women,
k) Profanation Ladies,
l) Illiterate persons, etc.

5.4 Deposits are received through cash or by instruments

5.5 Payment is done by instrument/ document

5.6 General Banking operations done by various departments/ section
I) Cash section,
ii) Bills and Remittance section,
iii) Clearing house section,
iv) Accounts section is ennoblement is various activities,
v) Etc.

5.7 Function of Cash Section
(a) Cash Receipt
(b) Cash Payment
(c) Issuance of Cheque Book
(d) Passing, Cancellation and Payment of Cheque

5.8 Functions of Bills and Remittance section
Issuance. Payment and Cancellation of DD. IT and P.O. OBC, IBC.

5.9 Clearing and Collection Department
Clearing and collection of instruments of different banks through central bank or its representative.

5.10 Accounts section
Book keeping, maintenance of vouchers preparation of General ledger & clean cash book. Maintenance of sundry, suspense etc. A/c for internal purpose.

5.11 Reconciliation of IBG A/Cs
IBDA- Inter Branch Debit Advice IBCA – Inter Branch Credit Advice
5.12 Custody and maintenance
Custody and maintenance of AOF, SS Cards, Cheque Books. Ledgers. Statement of A/C voucher and secrecy of Accounts.

5.13 Locker Service

5.14 Volt &. Maintenance of Strong Room
Cash & vouchers kept under lock and key under joint custody. Cash covered by insurance. Transaction hour is guarded by armed security guard.

5.15 Proper House keeping
Maintenance of Books and Records and Computer (IBBS Software).

5.16 To Open A New Account
This is an era of keen competition among banks. Most of the commercial banks vie with one another in tapping the savings of the public by means of purchasing of different types of financial product. These products are known as secondary securities, which shows claim against the financial institutions. Popularly these products are known as deposit; of different kinds and of various maturate. The most popular products are current-deposit (CD), savings bank deposit (SB), fixed deposit, short-term deposit etc.

Differential rates of weight ages have been assigned to Mudaraba Depositors on account of the above factors.

5.17 Period of Deposits
The longer the period of deposit, the greater the risk they bear with regard to fluctuation of the rates of profit and erosion of the value of deposit due to inflation. The Term Depositors have also to forgo profit in case of premature encashment.

5.18 Banking Facilities
The Term Depositors do not enjoy any banking facility such as, operating accounts by cheques, transfer of account from one branch to another, collection of cheques and other instruments, executing standing instructions through their accounts and so on and so forth. On the other hand, the PLS Savings Depositors have freedom to get the above services through their Accounts. PLS Short Notice Depositors enjoy still greater facilities in regard to making deposits in and withdrawal from their accounts.

a) The pattern of Rates of Return on various types of cost bearing deposits of the traditional Banks in our Money Market have also an important bearing on allocation of weightage at different rates.
b) In consideration of the above factors, full weightage has been assigned to our Mudaraba Deposits of 36 months and relatively lower Weightages have been given to Mudaraba Deposits of lower periods, Mudaraba Savings and Mudaraba Short Notice Deposits.

5.19 General Characteristics of Deposit Account

01. Al-Wayadia Current A/C (AWCA)
AWCA accounts are unproductive in nature as far as banks loan able investment fund is concerned sufficient fund has to be kept in liquid form, as current deposits are demand Liabilities. Thus huge portion of his fund becomes no performing. For this reason banks do not pay any of AWCA CD account holder. Businessmen and companies are the main customers of this product.

02. Mudaraba Savings Account (MSA)
As per Bangladesh Bank instruction 90% of SB deposits are treated as time liability and 10% of it as demand liability. In EBL there is a restriction about drawing money from SB account but anytime holder may draw money of any amount with prior notice, generally householder and individuals are the clients of this account.

03. Mudaraba Savings Notice (MSNA) A/C
MSA accounts can be treated as semi term deposit. Deposit should be kept in these accounts for at least seven days to get interest of MSA accounts is less then SB accounts. (5.50%) generally profit, but may increase to 6% or more depending on the fund. Check book is issued them but frequent use of checkbook is discouraged. Government organization, big corporate house and banks are generally the clients of this account. The volume of this account is generally large and notice has to be given to draw money.

04. Mudaraba Term Deposit Receipt (MTDR)
Fixed deposit are of two kind midterm deposit (MTD) and term deposit (TD) instrument whose maturity period is within one year are known as MTD and those above one year are considered as term deposit (TD). Calculation of profit TDR and provisioning regarding this is quite complicated issue. Profit is calculation at each maturity date and provision is made on that. Also at the month and provision of profit is mode.

5.20 Local Remittance
IBBL sells and purchases P.O. DD and T.T. to its customers only. IT does not offer remittance service frequently to those other than its customer. Pay Order (PO)
Pay order an instrument which is used to remit money within a city through banking channel the instruments are generally safe as most of them are crossed.

Demand Draft (DD)
Demands Draft is a very much popular instrument for remitting money from one corners of a country another. The instrument is basically used for transfer and payment. Difference between pay order and demand draft is in terms of place only P.O. is used for remitting money within the city whereas DD is used for within the country. DD too, constitutes current liability on the part of a bank. At IBBL DD is not sold to people other than its customer.

Telegraphic Transfer (TT)
Telegraph transfer is one of the fastest means of transferring money from one branch to another or from one to another. The TT issuing bank instructs its counterpart by tested telex message regarding remittance of money. No instrument is given for T.T. both parties should have accounted, as money is transferred.

Payment order (PO)
Payment Order is meant for making payment of the bankers own or of the customer’s Dues locally and not for affecting any remittance to an out station. In a sense, the payment order is used for making a remittance to the local creditors. PO is balance daily as the register has been designed on self-balancing method.

Chapter 6: Analysis and Findings

On the basis of partnership business of profit and loss Islami bank Bangladesh Ltd was established in Bangladesh to operate banking activities avoiding interest like other Muslim countries.
It is entirely a new banking system, which was adopted for a better change in socio economic condition and to make the banking function dynamic.
By the construction of capital, production employment opportunities investment and strong economical structure bank is performing major role to meet up the demand of society.
Islami bank is operated according to Islami Shariah where transactions are executed without interest. In the modern world Islami bank is developing banking activities for the welfare of the people according to the Islami Shariah.
IBBL has achieved stable growth and continuous progress to be one of the leading private sector banks of the country.
1 All activities are conducted on interest free system according to Islami Shariah.
2 Investment is made through different modes as per Islami Shariah.
3 Invest income of the bank is shared with the Mudaraba depositors according to an agreed upon ratio, ensuring a reasonable fare rate of return on their deposits.
4 Aims to introduce the welfare oriented banking system and also establish equity and justice in the field of all economic operations.
5 Extend socio economic and financial services to individuals of all economic background with strong commitment in rural uplift.
6 Plays a vital role in human resources development and employment generation particularly among the unemployed youths
7 Portfolio of investment and policy of investment have been specially tailored to achieve balanced growth and equitable development through diversified investment operations particularly in the priority sectors and in the least developed areas of the national economy.
8 Ensures Shariah compliance through regular and effective guidelines of powerful and highly esteemed Shariah council consisting of thirteen members representing Shariah scalars.
9 Lack of strong initially to explore investment opportunities through research and markets.
10 All employees are not expert of online banking system.
11 Some of the employers try to violet Islami Shariah when they deal with investment.
12 Most of the employers and employees are not business graduate/master.
13 Security in bank is not standard.
14 Some investment deal is very much slow.
15 Islami bank lacks efficient manpower.

Some steps can solve these problems:
1 Training facilities should be given to the young and uneducated entrepreneur.
2 To make the Shariah inspection strengthen regarding all investment of the bank
3 Official at branch level should more careful in compliance with desired Shariah regarding investment.
4 Investment decision make faster.
5 To reach banking facilities of Islami bank door to door of people investment in agriculture and small investment project should be expanded.

Chapter 7: Conclusion and Recommendation


Islami banking system the collection of invested money is easier than the conventional banking because Islami bank concerns with the purpose of investment not with only the invested money. We also think that there is bright future waiting for Islami banking in Bangladesh and IBBL is in a position to go as a catalyst for this development in the banking sector in Bangladesh. Another thing We have to mention here that the IBBL is going through the path in which they need to go and as like today it will bring more new and welfare oriented activities in the banking sector in the years to come. The special features of the banking policy of Islami bank are to invest on the basis of profit loss sharing system in accordance with the tenets and principles of Islami Shariah. Earning of the profit is not the only motives and objectives of the Islamic bank banking policy rather emphasis is given in attaining social good and in creating employment opportunities.
By concerning Islami bank and its operations we come to the conclusion that the investment models of IBBL are more superior to the conventional bank. In conventional banking system loan is granted on the basis of interest, which is fixed. In Islami banking system investment is going on with profit loss sharing system. In this system no fluctuation comes between growth of economy as well as growth of IBBL. In Islami banking system, it is possible to create balance between money supply and the production of goods. On the other hand, conventional banking system creates inflationary problem. In conventional banking system, investment doesn’t ensure employment opportunity besides Islami banking system directly work with unemployment problem. At the time of increasing interest rate, investment decreases and at the same time unemployment also increases. In conventional banking system, interest rate always fluctuates and even creates unrest in economy. Besides Islami bank always helps economic growth. In Islami banking system the collection of invested money is easier than the conventional banking because Islami bank concerns with the purpose of investment not with only the invested money.
Mention here that the IBBL is going through the path in which they need to go and as like today it will bring more new and welfare oriented activities in the banking sector in the years to come.


Though Islamic bank is comparatively superior to conventional interest based banks from various aspects like abolition of interest based loan market, no fixed cost of capital, stimulation for accelerating serving and capital formation, efficient allocation of investment, production and profit, easy recovery of investment capital, lower inflationary situation etc. Islami bank has to fight for several obstacles in case of harmonious operation. Here we have tried to locate some vivid hindrance and suggested accordingly.
1 Any kind of bank Shariah based or interest based has to operate under regulatory environment prepared and approved by the government. There are conflicts between Islami Shariah and general government rules and banking law. That’s why Islami bank doesn’t get the opportunity and help from the running law of government.
2 Insurance company pulls large amounts of money, which is mainly invested by bank. Islami bank doesn’t get benefit from insurance companies directly. Because insurance companies are not guided by Islami Shariah. So Islami bank is not interested to get insurance from that companies that’s why it is necessary to establish Islami insurance policy.
3 Islami banks can’t accept securities and bonds from Bangladesh bank because this securities and bonds are not well instructed by Islami Shariah. Besides the conventional banks get these benefits from Bangladesh bank that helps them to increase their wealth.
4 Islami bank lacks efficient manpower. In our country Islami banks spreading very rapidly but still skilled manpower is not sufficient. Islami banking and Islami economy must be included in the syllabus of schools and universities so that Islami educated people can have opportunity to get employed in Islami bank and the service of Islami bank can be better with the help of these skilled personnel.

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