Movement of Islamic Banking Throughout the World Including Bangladesh

Movement of Islamic banking throughout the world including Bangladesh

The expansion of Islamic banking along with traditional interest based banking is a recent phenomenon. During the fifties it was only  a subject matter of research but  during the sixties actual experiments were made and in the seventies Islamic banking institutions started to gain strength .The eighties and nineties are the period of consolidation and now Islamic banking is coming up as the only welfare banking system of the modern world.

Objective of Islamic banking:

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

The objectives of Islamic banking are not only to earn profit, but to do good and welfare to the people. Islam upholds the concept that money, income and property belong to Allah and this wealth is to be used for the good of the society.

An Islamic bank is committed to do away with disparity and establish justice in the economy, trade, commerce and industry; build socio-economic infrastructure and create employment opportunities.

Goals and Objectives of IBBL

  • To conduct interest free banking
  • To establish participatory banking instead of banking on debtor-creditor relationship
  • To invest through different modes permitted under Islamic Shariah
  • To accept deposits on profit-loss sharing basis
  • To establish a welfare-oriented banking system
  • To extend co-operation to the poor, the helpless and the low-income group for their economic uplift
  • To pay a vital role in human development and employment generation
  • To contribute towards balanced growth and development of the country through investment operations particularly in the less developed area.

 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 enlistment and financial services to the low-income community particularly in the rural areas.

Vision of IBBL:

Vision of IBBL is to always strive to achieve superior financial performance, be 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.

 Shariah Council of IBBL:

Profile of Council Members:

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

Fuqaha: 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.

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.

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.

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.

Objectives of Shariah Council: 

  • The functions of the council are to offer views and opinions on matters related to the bank from time to time. The council may require any paper document from the bank and examine the same to see whether it is according to see whether it is according to Islamic principles.
  • The shariah council assists the Board of Directors by advising them on matters related to shariah.
  • The opinion of the majority of members is taken as the opinion of the council provided that the said opinion is supported by at least three Muftis of the council.
  • The council maintains its secretariat and a well-equipped library as the Head Office of the bank where it keeps proper records of all of its proceedings and decisions.
  • The council may whenever it thinks necessary, constitutes a sub committee to help the council.
  • The council elects a chairman and a secretary from amongst them. The chairman will normally preside over the meetings. In his absence the members present elect one of them to preside over the meetings.

The council issues Shariah Certificate in the Annual Report of the bank.

Features of IBBL:

The bank is committed to run all its activities as per Islami Shariah. IBBL through its steady progress and continuous   success has earned the reputation of being one of the leading private sector banks of the country. The distinguishing feature s of IBBL is as follow:

  • All its activities are conducted on interest-free banking system according to Islamic Shariah.
  • Establishment of participatory banking instead of banking on debtor-creditor relationship.
  • Investment is made through different modes permitted under Islami shariah
  • Investment income of the Bank is shared with the Mudaraba depositors according to a ratio to ensure a reasonable fair rate of return on their depositors.
  • 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 up liftmen particularly in the rural areas.
  • It plays a vital role in human resource development and employment generation particularly for the unemployed youths.
  • It extends co-operation to the poor, the helpless and the low-income group for their economic development.
  • Its aim is to achieve balanced growth and equitable development of the country through diversified investment operations particularly in the priority sectors and in the less developed areas.

Functions of IBBL:

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

 General Banking: it includes:

a.   Receipts and payment of cash.

b.   Mobilization of deposits

c.   Handling transfer transaction.

d.   Operations of clearing house

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

f.   Collection of cheques and bills.

g.   Issue and payment of Demand Draft, Telegraphic Transfer and Payment Order.

h.   Executing customers standing instructions.

i.   Maintenance of internal accounts of the bank.

j.   Maintenance of safe deposit lockers.

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 Deposit Account.
  9. Mudaraba Monthly Profit Deposit Account.
  10. Mudaraba Moharana Account.

Foreign Exchange Business:

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

a)      Opening letter of credit on the principle of Mudaraba sale, on the principle of Musharaka sale and under wage earner scheme.

b)      Opening letter of credit (LC) against commission for importing industrial, agricultural and other permissible items under Islamic Shariah and Import policy.

c)      Handling of export/import document.

d)     Financing in import under MPI (Mudaraba Post Import)

e)      Financing to export on profit or loss sharing.

f)       Handling Inward and outward remittance.

Other activities:

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

  • Education scheme for assisting poor scholar student to case and help them to continue their study.
  • Income generating scheme for the unemployed youth of the nation.
  • “Monorom” sale center for marketing homemade garments, handicrafts and other items.
  • Health scheme for fulfillment of health needs of rural people.
  • 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.
  • Assistance to mosque for construction, repair and renovation.
  • Islamic bank hospital was established to extend first hand modern and contemporary medical service to the people on non-profit business.

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:

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

  IBBL’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.

Key information of Islami Bank Bangladesh Limited at a Glance:

Date of Incorporation                         :                       13th March 1983
Inauguration of 1st Branch                 :                       30th March 1983
(Local Office, Dhaka)

Formal Inauguration                           :                       12th August 1983
Share of Capital

Local Shareholders                             :                       42.12%

Foreign Shareholders              :                       57.88%

Authorized Capital                                    Tk.5, 000.00 million

Paid-up Capital                                          Tk.3, 801.60 million

Deposit                                                      Tk.166, 637.00 million

Investment                                                 Tk.174, 068.00 million

Foreign Exchange Business:                     Tk.287, 919.00 million

Number of Branches                                   186

Number of Shareholders                             20,960

Manpower                                                   8426

Source: Branch Managers’ Conference Book 2008, IBBL.

Key information of Foreign Trade & Remittance under IBW of IBBL

 1.        No. of Division of IBW                                                          : 5

 2.        No. of AD Branches                                                               : 38

 3.        No. of Forwarding Branches                                                  : 67

 4.        No. of Foreign correspondents                                               : 884

 5.        No. of Exchange Houses in operation                                                : 61

 6.        No. of Nostro accounts                                                           : 42

 7.        No. of LC’s handled in 2007                                                  : 32991

 8.        No. of export Bills handled in 2007                                       : 29087

 9.        Import volume 2007 (million Tk.)                                           : 137086

 10.      Export volume 2007 (million Tk.)                                           : 66690

 11.      Remittance volume 2007 (million Tk.)                                   : 84143

 12.      Import growth in 2007                                                            : 42%

 13.      Export growth in 2007                                                            : 30%

 14.      Remittance growth in 2007                                                    : 56%

 15.      Foreign Exchange Business Growth in 2007                          : 43%

 16.      Foreign Exchange income in 2007 (million Tk.)                     : 6445

 17.      Income of IBW in 2007 (Million Taka)                                  : 814

Islamic Banking