Problems and Prospects of Microfinance in IBBL



Dissertation of MBA under the Faculty of Business Administration of Bangladesh Islami University (BIU) is an obligatory part for all students. The report includes the practical knowledge and information observed and obtained during the program.

The title of my thesis is Prospects and Problems of Microfinance in IBBL.

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

The task envisages identifying as effective approach to poverty alleviation through providing micro-financial services as well as other development services to the poor and ultra poor. IBBL is very keen to promote Islamic microfinance for the poverty alleviation so that poverty reduction in Bangladesh is efficient, faster and exploitation free and that the poor and the very poor can come out of poverty cycle early.

The Islami Bank’s ‘Rural Development Scheme’ has been introduced in 1995 to cater to the investment needs of the agriculture and rural sector to create opportunity for generation of employment and raising income of the rural people with a view to alleviate poverty. The main objective of this report is to evaluate the overall performance of Islamic microfinance program of Islami Bank Bangladesh Ltd. along with how efficiently the Bank is providing services to alleviate the poverty of the rural area poor people.

The main limitations of the study involved lack clarity of the concept of Islamic finance and Islamic microfinance among microfinance practitioners. Resources persons were difficult to come by who can give appropriate interpretation of Islamic principles of finance.

Despite various problems and shortcomings, the Islamic Bank’s RDS have the potentiality to grow and expand its area of activities to bring good to the humanities. Microfinance has proved to be an effective tool to reduce poverty, if not eliminate poverty. Since Microfinance alone can not alleviate poverty in its entirety, Social Safety Nets in the form of Zakat and transfer fund in the form of grant be initiated from the surplus generated out the commercial operation of the respective MFIs and donation from well to-do people and institutions in the locality and rich Muslim countries.

Despite hard competition among microfinance operating in Bangladesh, both local and international, IBBL’s RDS has made tremendous and remarkable progress practically in every sphere of its activities. This success has been made possible due to dynamic leadership of its management as well as devotion and sincerity of all categories of Officers and Executives.

 Objective of the Study:

Main Objective of the study:

The main objective of this report is to evaluate the overall performance of Islamic microfinance program of Islami Bank Bangladesh Ltd. along with how efficiently the Bank is providing services to alleviate the poverty of the rural area poor people.

Specific objectives of the study:

Identify the Problems and Challenges of Islamic microfinance in respect of IBBL.
To get an overview on Rural Development Scheme(RDS) of IBBL
To gather comprehensive knowledge on overall functions of RDS.
Identify the difficulties and hindrances, the Scheme is facing
To review and identify options for strengthening existing microfinance program of IBBL
To make a study of the facts in order to arrive at certain conclusion about overall microfinance operation and the growth, expansion and profitability of the Scheme of IBBL
Critically analyze the functions and the operations of each level and to find out the way how to expand the activities of the Scheme in future.
To assess future potential and promo ability
To identify the managerial problems regarding Islamic microfinance
Finally, it helps us to know the overall situation of Islamic microfinance of Islami Bank Bangladesh Limited.


► Opportunity to earn more in the new areas;

► Opportunity to create employment both directly and indirectly;

► Spreading health and moral education amongst the poor woman folk in the rural areas for making them enlightened in the light of hygiene and Shariah;

► To change the idle women population into a contributing assets for the well being of the respective families in particular and the society in general;

► For contributing towards development of an enlightened nation , dignified womenfolk and reduce the poverty;

► To realize the ultimate goal of Islamic Banking;

► Scope of cross selling of deposit and remittance product;

► Widen the scope of portfolio diversification;

► Offers the scope of expanding Branch Network quickly to Upa-zilla level;

► Scope of extensively using the existing infrastructure;

► Can be source of low cost Funds by making savings attractive to RDS members;

► Scope of winning the loyalty of RDS members and supply to their financial needs as they grow.


Sourcing of Data Collection:

The data and information were collected mainly from secondary sources i.e. different publications of IBBL, ASA, Grameen Bank & other Journals and some data and information were collected from primary sources through interview of the officials of the Bank and different employee of other microfinance Institutions.

Primary Sources:

Discussion with Bank Executives & Officials
Personal observation.
Desk works of concerned Division.

Secondary Sources:

Annual report of the Bank.
Related books and different publications
Different statements collected from ASA, BRAC, Grameen Bank etc.
File, Balance sheet and various documents.
CDF statistics

Limitations of the Study:

There is not enough Books, Journals or write-up in respect of Islamic Microfinance.

In preparing this report, it was difficult to communicate with the RDS members of the Bank, as many of them were hesitant to respond. As a result, the sample size is not so big.

In preparing this report, another limitation is policy of the Bank not to disclose some data and information for obvious reason that might be very much useful.

The outlet owners might have got a little biased on the fact. Because they thought that, the study was being prepared for the particular department or may become competitor.

Other some limitations of the study, which are given below:

a. Time limit of the study:
I could not be able to accommodate and spend enough time to make an in depth study for excessive in my official works.

b. Location of the study:
The study has been conducted mostly at the Head Office of IBBL and more or less at other NGO’s level and overall performance of branches could not be evaluated for the time constraints.


 History of IBBL:

The General Secretariat of the Organization of Islamic conference (OIC) in its Foreign Ministers Conference held in Senegal in 1978 approved the definition of Islamic Bank as “a financial institution whose statutes, rules and procedures expressly state its commitment to the principles of Islamic Shariah and to the banning of the receipt and payment of interest on any of its operations.”

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

In a nutshell, the history of Islamic Banking is that the 1960s was the decade of practical experiment and 1970s was the decade of establishment. The decade of 1980s was the decade of success and expansion as a faster rate.

Genesis of Islamic Banking in Bangladesh –

i. In August 1974, Bangladesh signed the Charter of Islamic Development Bank and committed itself to recognize its economic and financial system as per Islamic Shariah.

ii. In 1978, raised the issue in Islamic Foreign Minister’s conference in Senegal

iii. In 1979, 1980, the issue was arisen in UAE & Pakistan respectively by then Foreign Ministers of Bangladesh.

iv. In January 1981, 3rd Islamic Summit Conference by then the President of Bangladesh.

At last, the long drawn struggle to establish an Islamic Bank in Bangladesh became a reality and Islami Bank Bangladesh Limited was founded on 13th 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.

Mission & vision of the Bank:


The Islami Bank Bangladesh Ltd. has completed its successful existence and now it has taken a revolution of its business operation in the year 2004 searching incremental improvement in productivity, operational efficiency and structure consequently, a new organizational structure has been developing according to business focus, priorities and competitive pressures.

The corporate missions of the Bank are mentioned below:

1 To provide excellent quality customer service.

2. To provide high quality financial services in foreign trade.

3. To maintain corporate and business ethics.

4. To create employment opportunity by project finance.

5. To play role in the socio-economic development

6. To become trustworthy to the depositor and the borrowing customer.

7. To make a sound capital base and to provide a hand some amount of dividend to share holder.


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

□ Their goal is 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 systems.

□ They will try to encourage saving in the form of direct investment.


i. To maintain all types of deposit account.

ii. To make investment.

iii. To handle foreign exchange business.

iv. To extend other banking services.

v. To uphold Islamic ethical standard.

vi. To conduct social welfare activities.

 Management of IBBL:

The organization has a “Pyramid Structure”. The Managing Director is the top of the Management (MD). Under the MD there are 5 (five) Deputy Managing Directors who are individually head of 5 (five) Wings. Under each of the Wings there are several Divisions / Departments. Hierarchy is well defined and follow specific chain of command. The Wings Heads and Divisions Heads reporting directly to the Managing Director.

Financial Information of the Organization

Authorized Capital Tk. 20,000.00million

Paid up Capital Tk. 10,007.71million

Local Shareholders 41.43%

Foreign Shareholders 58.57%

Zones 14

Branches 266

Deposit 341,631million

Investment 341,031 million

Foreign Exchange Business 672,042 million

Manpower 11,305

Number of Shareholders 60564



Vision & Mission of RDS:

The Management has taken up a action plan for 2012 for RDS. As per said plan, number of village to be covered by the year 2011 is 13,170 and about 1.23 million members (i.e. 1.23 million families) are expected to bring under the fold of RDS. Bank’s investment will rise to the tune of Tk.11.83 billion by the end of 2011.

They have a vision of reaching out to all the villages of the country through RDS program by the year 2020 if we can expand our branch network to each and every Upazilla (thana) head quarter by that time.

They have also conceived a tentative plan of ‘Integrated Area Development’ for the villages. According to the plan, all the villages will be served by the Bank under its normal Banking services including RDS.

The non-financial services in the field of health & sanitation and primary & elementary religious education shall be rendered by Islami Bank Foundation (IBF)–a 100% owned subsidiary of the Bank. Infrastructure development program shall be taken jointly by local individuals/beneficiaries and IBF.

3.02 Salient Features of RDS:


The main objectives of the Scheme are:

To extend investment facilities to agricultural, other farming and off-farming activities in the rural areas.
To finance self-employment and income generating activities of the rural people, particularly the rural unemployed youths and the rural poor.
To alleviate rural poverty through integrated rural development approach.
To extend investment facilities for hand tube-wells and rural housing, keeping in view the needs of safe drinking water and housing facilities of the rural dwellers.
To provide education and Medicare facilities to the down-trodden people.

Target Area

Initially the Scheme was started as a Pilot Scheme in the rural areas of certain districts under the direct supervision of the nearby Branches of the Bank. At present, it is extended to all the 64 suitable districts out of 64 districts of the country through 266 Branches of the Bank. The metropolitan and the hill tract areas are kept outside of the Scheme.

Command Area and Baseline Survey

Each designated Branch selects villages within a radius of 16 kilometres of the Branch premises. Following criteria is being followed in selecting a village:

a. Easy communication;

b. Availability of agriculture and other off-farm activities;

c. Abundance of low-income people;

d. Predominance of Islamic values and ideas.

After primary selection of a project area consisting of 4 to 6 villages, Branch conducts detailed Baseline Survey to identify the target group people and the verities of economic activity in the area. The concerned Branch has to ensure the availability of at least 400 target group people in the selected area.

Target Group

Able bodied & industrious rural poor having age between 18 to 50 years and the permanent resident of the project area.
Farmers having cultivable land maximum 0.50 acres and the Sharecroppers.
Persons engaged in very small off-farm activities in the rural areas.
Destitute women and distressed people.
Persons having liabilities with other banks/institutions are not eligible for investment under the Scheme.

Rate of Return:

The rate of return is determined by the authority from time to time. At present, the rate of return is 10%. Timely repayment is encouraged by offering 2.5% rebate.

Security Requirements

Generally, collateral security is not required against investment under the Scheme, as the Scheme has been drawn taking into account the social welfare objective of the Bank for upliftment of the socially down-trodden and economically backward and weaker section of the population of the society. However, Group discipline should be strictly followed and complied with so that only the right persons are selected and included as members of the Group.

However, each member of the Group gives personal guarantee for other members of the same Group and the members are jointly and severally liable and responsible for payment of investment.

Sanction and Disbursement

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

Modes of Investment

The Branch selects any of the following modes depending upon the sector and purpose of

investment :

a. Bai-Muajjal

b. Hire-Purchase Shirkatul Meelk (HPSM) or Leasing

c. Bai-Salam

d. Murabaha TR

e. Mudaraba

f. Musharaka

Savings Plan

a. The members of the Group have to open Mudaraba Savings Account (RDS) in their individual names with the Branch from the very inception of the Group activity.

b. This Mudaraba Savings Account is non-cheque account, which induces the clients to make a habit of compulsory savings.

c. This savings may, however, be withdrawn by the member if he does not have any other liability with the Branch in any way.

d. The weekly compulsory savings is minimum Tk.10.00.

Centre Fund

Each member of the Group has to deposit minimum Tk.2.00 per week in the Centre Fund. This Fund is kept by opening a Mudaraba Savings Account in the name of the respective centre. This Fund is utilised for the welfare of the members by way of Quard as per decision of the Centre in the weekly meeting. This account is operated by Centre Leader & Deputy Centre Leader jointly. This fund is refundable.

Supervision, Follow-up and Monitoring

The investment under the Scheme is fully supervised. The Branch has to take the responsibility for the investment as well as recovery. To ensure 100% recovery the Field Officers make very close and intensive supervision over the clients. Moreover, the group approach is very helpful in this process – Clients are motivated, induced and pressed by the fellow members in recovering the investment.

One each Field Officer is appointed for 400 investment clients and one or more Assistant Officer/Officer is engaged in the Branch as Project Officer to supervise the activities of the Field Officers. One official from each Zonal Office is assigned to supervise RDS activities of the Branches under the Zone. The RDS Zone Officers visit the Branches under their respective Zone at least twice in a year. Head Office Officials also visit the activities in the Branch level once in a year. Moreover, weekly, monthly, quarterly and annual statement of RDS activities of the Branches are prepared and sent to the higher authority to monitor and evaluate regularly.

Micro Enterprise Investment Scheme(MEIS)

To satisfy the graduated clients who already availed highest limit of investment under off-farm activities, a special scheme has been formed from Tk. 50,000/- to Tk. 300,000/- has been introduced in the name and style of Micro Enterprise Investment Scheme (MEIS). Local small traders may also be provided with investment facilities under this limit.

The existing Field Officers and Project Officer explore the possibilities of investment in the area under the aforesaid Schemes and recommend to the Branch for sanction. If the Branch is designated to handle the proposal under the above Schemes, the Branch may sanction within the business discretionary power of the Branch Incumbent, but if it is beyond the discretionary of the Branch incumbent, the Branch may send the same to Zonal Office/ Head Office for sanction. The entire Scheme has been chalked out in such a way so that all the persons within the command/ target area may be brought within the fold of Bank’s Investment Scheme for productive economic activities.

Field of cooperation from the external sources

(IDB or other Islamic development agencies):

Rural area of Bangladesh is very prospective field for the development agencies. There is abundant scope of human resource development as well as socio-economic development. Tremendous opportunity of micro-investment program is there in the rural Bangladesh. Recovery rate in micro-investment is also very high (about 100%) in comparison to the big investments in the urban areas. But the micro-investment activity requires very high operating cost and it becomes very difficult to meet up the operating cost of the program by satisfying cost of fund at the rate of 9 to 10 percent. A low cost fund may make a boom in the micro-investment activities in rural areas of the country.

Beside the investment program, it is essential to train-up the beneficiary-members on different trade course like Poultry, Dairy, Fishery, Hatchery, Tailoring, Handicraft making, Cloth dying etc. There also lies the necessity to work in the field of education and health. Such as, giving regular stipend and lump sum grant for books & education materials to the meritorious but poor children of the RDS members; formation of free-Quranic school (Madrasha), library, free (or low cost) medical checkup & health counseling centre etc. These charitable programs require non-refundable huge fund, which may be explored from the donor agencies.

Many NGOs running their micro credit program on conventional basis (based on interest) along with many non-financial welfare oriented social services in the field of individual skill development in the aforesaid off-farm activities and social services like health & sanitation, supply of safe drinking water, education program etc. with the financial assistance from the western world.

However, Islami Bank Bangladesh Limited is running its Rural Development Scheme with its own fund based on Islamic Shariah, but at a very low profit in comparison with other conventional NGOs. Due to paucity of sufficient financial resources, we are handicapped in running non-financial services like elementary school for the children of RDS member, free medical check-up for the poor women members and free distribution of tube-well costing Tk.20,000 to 25,000 in each installation in some areas. Financial Assistance for running the aforesaid non-financial services from IDB or other rich countries could expedite the development of rural Bangladesh reducing overty level and increasing the literacy rate within the foreseeable shortest period.



.01. Background of IBBL’s Microfinance Program:

Bangladesh with its 44% people living below poverty line and 20% living in absolute poverty is suffering from acute rural-urban economic disparity coupled with illiteracy, lack of proper health and sanitation facilities. The country’s economy is an agrarian one with vast majority living in rural areas. The agriculture sector is unable to provide any further scope for employment resulting in influx of rural population towards urban areas. Rural areas are characterised by stagnant agriculture and scanty industries. Underemployment and unemployment is a regular phenomenon particularly in rural areas. The vast human resources have remained unutilised due to lack of education, proper training and concerted efforts to help grow the rural economy. It results in uneven distribution of income which causes serious set back in balanced geographical growth as well as growth of GDP.

Islami Bank Bangladesh Limited was founded with the major objective of establishing Islamic economy for balanced economic growth by ensuring reduction of rural-urban disparity and equitable distribution of income.

To promote integrated Rural Development through establishing model villages and thus alleviating rural poverty, the Board of Directors of Islami Bank Bangladesh Limited launched an investment scheme namely “Rural Development Scheme (RDS)”. The Board of Directors of IBBL approved the scheme in principle in its 63rd meeting held on 26.01.95. The Hon’ble former President, Government of the Peoples Republic of Bangladesh, Jb. Abdur Rahman Biswas formally inaugurated the Scheme on 31.07.1995. The main objectives of the Scheme are to alleviate poverty, to generate income, to create self-employment opportunities and moral development of general mass in the rural areas. The volume and activities of the Scheme are expanding in all dimensions day by day. The Bank through its designated Branches are extending integrated investment program in the selected villages.

Performance of Rural Development Scheme (RDS):

Islami Bank Bangladesh Limited launched its Rural Development Scheme (RDS) in 1995. In the mean time, 266 Branches of the Bank have been operating the Scheme in their respective areas. These Branches are working among the poor in 12,857 villages covering 2,500 unions under 400 thanas of 64 districts of the country. Present number of Centre is 22,206. Present number of members is 608,703. Since beginning of the scheme, the members are provided investment facilities of an amount of Tk. 382,319.00 million up to 31-12-2011 against which outstanding was Tk. 5,110.00 million. Rate of recovery under the Scheme is more than 99%.

Institutional Development:

Rural poor are organized in the selected villages under different Centres. Till 31st December 2011,RDS officials have so far organized 608.703 members under 22,206 crntres in 12,857 villages, 85% are female. Expansion of RDS in the last 3 years is shown in the following table:

Table No. 2: Growth of RDS members since inception

Investment Program:

RDS members have been provided with collateral – free micro investment facilities in different agriculture and off-farm activities up to maximum amount of atak. 50,000/- per client. In view to meet –up higher invest need of the granted RDS Members as well as other small entrepreneurs of the project areas, Micro Enterprise Investment Scheme (MEIS) has been introduced in the year 2005 with maximum ceiling of Tk. 300,000/-. Since inception, an amount of Tk. 42,285.23 million has so far been disbursed under both the programs.

Sectors and Ceiling of Investment:

There are different types of investment sectors where the Bank finances to the members of RDS. Major sectors are as follow:

Sectors of investment under RDS & MEIS

1. Agriculture Production

01. Cereal crops (rice, wheat, maize, corn, sugarcane, potato etc.)

02. Pulse crops (lentil, mug, khesari, gram, orhor, pea, chick pea, beans etc.)

03. Oil seeds (mustard,soybean,sunflower,sesame, nut, coconut oil etc.)

04. Vegetables & Spices

05. Horticulture (Fruit cultivation)

06. Floriculture (flower cultivation)

07. Fibre crops (jute, cotton, silk etc.)

08. Other (bettle vine, tea, honey, salt etc.)

2. Nursery & Social Forestry

01. Nursery

02. Social forestry

3. Agricultural Equipment

4. Live stock

01. Cow/Buffalo fattening

02. Milch Cow/Buffalo

03. Ploughing Cow/Buffalo.

04. Goat/Ram rearing

05. Other

5. Poultry/Bird

01. Chicken (broiler, layer, local varieties)

02. Duck, Pigeon, Koel etc.

03. Hatchery

6. Fisheries

01. Fishing Boat/Net etc.

02. Pond Fisheries

03. Shrimp/Prawn culture

04. Hatchery

7. Rural Transport

01. Rickshaw, Van, Cart, Cycle etc.

02. Boat

03. Others

8. Rural Housing

9. Off-farm Activities

01. Manufacturing & Processing

02. Trading & Shop-Keeping

03. Peddling

04. Service (tailoring, laundry, saloon etc.)

05. Other

10. Health Support Program (IBF)

01. Tube well

02. Sanitary Latrine

03. Others

Various Sectors along with Ceiling of Investment:

Table No. 3: Sectors along with Ceiling of Investment

Modus Operandi of RDS:

The cardinal principle of the Scheme is the ‘Group Approach’, Allah loves those ‘who conduct their affairs by mutual consultation’ (Al-Quran 42:38). For all decision-making activities, this mutual consultation is given high priority. The salient features of the Group formation are the following:

► Select suitable villages within 16 kilometer radius from the Branch location.

► Conduct Base Line Survey to identify target group people and also to have base line situation.

► Organize the target people in groups of 5 people one person from each selected family in a centre of minimum 2 and maximum 8 groups under the direct supervision of a Field Officer (FO).

► One Field Officer, who is a regular employee of the Bank, shall organize a target people of 400 from 400 selected families of the target group through the centres.

► Each Group selects Group Leader and Deputy Group Leader.

► The Group Leaders in a Center select the Centre Leader and the Deputy Centre Leader who are responsible for overall discipline and performance of the centre.

► The centre has to conduct regular weekly meeting on a fixed date and time in presence of the FO to collect compulsory savings and weekly installment of investment.

► Weekly meeting starts with recitation from the Holy Quran, discusses the meaning of the same and issues related to the necessity of education and living a healthy life by ensuring safe drinking water and sanitary latrines for the members of the centre who does not have the same.

► During the weekly meeting the proposal for new investments under Bai-muazzal mode for shariah compliant purposes with a view to Self employment and Income Generating Activities are discussed and accepted for approval with recommendation from the members and centre leader.

► During the weekly meeting one or two of 18 commandments for the scheme members are also discussed.

► The weekly meeting also resolves the disputes if any amongst the members.

► After the weekly meeting at least 2(two) clients location is inspected by the FO physically to see whether the goods have been actually purchased and in possession of the client member.

► Clients are allowed to take investment initially Tk.8,000/ to 10,000/(US$115 to 145) maximum after 8 weeks of his/her enrollment as active member in the group and the highest of amount of investment under the scheme is Tk.30,000/ (US$435)

► Each member is to keep a compulsory savings of Tk.10/ (US$0.15) in each week

► Rate of Return: At present, the rate of return is 10% which is changed from time to time. Timely repayment is encouraged by offering 2.5% rebate.

► The investment amount along with profit has to be paid back by the client member in 44 equal weekly installment

 Investment Sanction Procedure & Risk:

►The members of RDS shall apply as per prescribed format F-220 for availing investment.

► The Field Officer shall discuss with the RDS group members about the investment applied by the member and take concern of the Centre Leader & Group Leader and also all the members of the respective centre.

► The concerned Field Officer shall assess the necessity and actual amount of investment with the appropriate sector/items.

► Centre Leader & Group Leader will recommend the investment proposal and after proper justification, the Project Officer and respective Field Officer will sign in the proposal.

► An Investment Committee comprising 3(three) members like Manager, Project Officer and concerned Field Officer will discuss with the investment proposal and if found everything positive then approved.

► At the final stage, the Manager take an interview of the member applied for investment and disburse the amount.

► One Field Officers is to handle on an average 350 to 400 clients in a year, which has made it very difficult to purchase commodities/articles for each and every client by the Field Officer.

Risk associated when purchase goods

The risk associates with handling cash by the Field Officers in making the aforesaid purchaser by themselves have made the buying-selling more difficult. For example-while the V are carrying cash after receiving the sane from the Bank branch and going to the markets, the Field Officers may indulge in fraudulent activities by themselves or the cash may be stolen or lost or might be snatched away by the miscreants. In that case who will be made responsible.

In order to comply with the Shariah principles, we are making our Micro Finance clients as buying agents of the Bank.

 Key Factors for Success of Micro Finance / RDS:

►To take Microfinance as a core Commercial Program through a subsidiary;

► Continued Genuine Commitment from Board and Management;

► Institutional Factors:

Through a subsidiary or a unit/department;
Branch location has to be very close to the field of operation
Appropriate staff training and dedicated microfinance staff;
Close monitoring and supervision by the field forces;
Appropriate and computerized MIS
► Products:

Responsive Investment and Savings product design;
Agile investment processing;
Focuses on maintaining high portfolio quality;
Develop marketing and brand identities

Welfare oriented services of RDS:

Rural sector, having 70% of total population, occupies an important position in the economy of Bangladesh. But unfortunately about 44% of the rural population lives below poverty line due to lack of sufficient employment opportunities and access to required finance for income generating activities. This phenomenon causes the rural poor to be the victim of economical, social, political & religious exploitation of different groups of opportunists. In spite of this scenario of rural Bangladesh, there is tremendous scope of developing rural economy by best utilization of vast human & natural resources and also by making easy access to finance to the rural poor.

Keeping in view the above socio-economic condition of rural Bangladesh IBBL, which is endeavoring to establish a balanced economic society based on equity and justice following the ideals of Islamic Shariah, has introduced Rural Development Scheme (RDS) in 1995 for alleviating the poverty of rural people and developing rural economy by establishing model villages through Integrated Rural Development Program.

At present, the Scheme has been operated through Branches of the Bank covering 10023 villages of the country. About 516,725 poor rural people have been brought involved with the Scheme as members by our 1,789 Field Officers. Tk 13,969 million has so far been disbursed since inception under the Scheme out of which present outstanding is Tk. 2885 million (as on 31-12-2011). Rate of recovery under the Scheme is 99%. We have taken a plan to expand the Scheme to 13,500 villages of the country by the year 2011 involving 1.50 million people as members.

It may be mentioned that the poor beneficiary members in the rural areas require some non-financial services in the field of health & education. At present, we cannot provide these services due to paucity of fund. The NGOs and the Christian Missionary Organizations working in the country are providing these services free of cost with foreign donations/charitable fund. Grameen Bank, the pioneer of micro credit, has also so different welfare program for their beneficiary me members in the above two fields. Though our rate of return is too low in comparison to other MFI/NGOs, but the non-financial services of other organizations make their program attractive among the poor villagers.

In view of the above, we must have to introduce some non-financial services for our members to make our program more attractive and to sustain in the very competitive market. To meet up fund requirement following steps may be taken:

At present, our RR is 10% flat with a provision of 2.5% rebate for regular payment. We can enhance the RR from existing 10% to 12.5% with a provision of 2.5% rebate as earlier. In this case, we may keep the size of installment same by increase the number of installment from existing 44 to 46. We may build up a Welfare Fund for the said non-financial services by segregating the RR as Income 7.5%, Supervision Charge 4% and Welfare Fund 1%. It may be mentioned that Supervision Charge is required to be segregated because Bank’s ratio of income against Mudaraba fund cannot meet-up the high supervision cost of the Scheme. However, this year we are expecting to disburse about Tk. 3500 million under RDS, which could be derived Tk.35 million to the Welfare Fund. That is, every year 30 to 50 million taka can be accumulated in this fund, which can help to take initiatives for providing various NFS to the poor members easily.
We may also introduce another Security Fund for the RDS members by their own weekly contribution. If a member died during the period of his/her involvement with the Scheme, he/she will be paid 10 (ten) times of his/her own contribution. The members, who will retire or leave the Scheme, will also be paid the amount so contributed by him/her along with profit. A member may include his/her spouse as a member of the Security Fund. In such a case, they will also enjoy the same benefits until involvement of the principal with the Scheme.

Different welfare services:

Death benefits:

If a member died during his/her involvement with the Scheme, his/her legal heirs will be provided with following facilities:

Burial expenses for a dead RDS members will be provided to his/her family @ Tk. 1,000/- if they are not able to bear the cost by their own source.
Entire outstanding investment of the dead member, if any, will be waived.
If the actual utilizer of RDS investment died, other than the RDS member (husband/son etc. of the female member), the entire outstanding investment may be waived on case to case basis considering their condition.
Entire deposit will be refunded to his legal heir(s) after adjusting other liabilities (Q- CF etc.), if any.
Ten times of own contribution towards Security Fund will be given to his legal heir(s).
If the spouse of the member died as a member of Security Fund, the death benefit Security Fund will be given to the member concerned.

Health Services:

A Lady Doctor will be appointed in every Branch. She will check-up the RDS members and their family members’ monthly basis by conducting visit to the rural areas three/four centres in a same place along with a Health Assistant and First Aid arrangement. Salaries and other allied expenditures for providing this service will be met-up from the Welfare Fund of RDS.

Education Services:

The offspring of the RDS members may be provided with Quard for their graduation and post graduation studies upon satisfactory performance in HSC level. The meritorious students may be provided with Tk. 100,000/- (one lac) or 75% of academic expenditure (including boarding and lodging cost) which ever is lower for a full course of graduation or post graduation study. This money will be provided as a Quard recoverable in monthly installments or lump-sum basis from the student concerned within three to five years starting from after three months of publicity of the result or after one year of completion of the course whichever comes earlier. Scholarship/stipend for under graduate study may be considered later on subject to availability of fund in the said Welfare Fund. If the idea accepted in principle, the detail of the Education Program may be prepared later on.

 SWOT Analysis:

SWOT analysis refers to analysis of Strengths, Weakness, Opportunities and Threats of the organization. This facilitates the organization to make its future performance improved in comparison to its competitors. An organization can also study its current position through SWOT analysis. For all of these, SWOT analysis is considered as an important tool for making changes in the strategic management of an organization.

Rural Development Scheme of IBBL is conducting by the existing Management of the Bank. So, its progress and prospects is depends on the potentiality of IBBL. Therefore, SWOT analysis of Islami Bank Bangladesh Limited (IBBL) has been done in the context of Banking company as under:

Internal Analysis

Strengths of IBBL:

Steady Growth: IBBL has got a smooth growth of over the years in terms of deposit, investment and profit.
Fig. in million

Paid up capital of our Bank was 3801.60 million in the year 2007 and 10,000.00 million in the year 2008. The growth rate is 23.70%
General honesty and integrity of about 95% employees of the Bank.
In the year 2008, Bank Branch was 176 but in the year 2011, number of Branch raised by 186. So growth rate is 6.25%
Islami Bank has already established its wide image and favorable reputation in the banking territory of the country. It is one of the leading private sector commercial banks in Bangladesh.
The bank posses the reputation and goodwill of quality services to its all kinds of customers.
The bank has 80% trained, honesty, experienced and well educated manpower.
The bank has unique corporate culture, which acts as a great motivational factor among the employees.
The working environment in the bank is very friendly, interactive and informal. There is no barrier or boundary for communication between the superiors and the employees.
The bank has 90% experienced and efficient Management & Board of Directors.

Weaknesses of IBBL:

Lack of legal system of Islamic banking.
20% Client’s low moral obligation to declare its actual profit.
Default culture of the country.
10% employees of the Bank have no knowledge about Islamic Banking.
The promotional activities of the Bank are not adequate to widen its function.
The Branches of the bank have to depend on its Head office for decisions.
The bank does not provide online banking service in 70% branches which limits its competence in the fast changing banking sector.
The product diversification of the bank is very narrow.
The bank has 30% redundant manpower compared to other banks of the same generation, which increases it operational cost.

Opportunities of IBBL:

Islamic values and ethics have been practicing widely in our country and it has been increasing worldwide.
Wide clientele base of the bank.
60% Peoples have attraction to Islamic financial system.
Our 40% people are going to be savings oriented in the small scheme, which can be provided by Islami Bank Bangladesh Ltd. by its different schemes.
Islami Bank Bangladesh Ltd. may help small and medium enterprises by lending.
The bank can introduce special corporate schemes for corporate customers or service holders according to the professions, such as engineers, lawyers, and doctors etc.
The bank introduced ATM service and Online banking.
Presently there are total own ATM booth No. is 116.
IBBL has introduced i- banking, i- recharge in the year 2011.

Threats of IBBL:

Some foreign and local banks may be threats for IBBL to introduced new products in the banking system.
Bank suffers to introduce about 30% new product due to regulatory restrictions which is contradictory with conventional banking. The selection of default customers may be a hindrance of its rapid growth.


1. Investment outstanding for the year of 2008 was 1106.47 million & 2009 was 2242.21 which growth rate was 102% but Investment outstanding for the year 2011 was 2884.66 which growth rate was only 29% over the year 2009. It is revealed from the above statement that the trend of Investment has been deceased.

2. Personal Savings of the members of RDS for the year 2008 was 459.10 million & 2009 was 727.67 which growth rate was 58% but for the year 2011 was 1053.56 which growth rate was 44% over the year 2006. It is revealed from the above statement that the trend of Savings has been deceased.

3. RDS members for the year of 2008 was 217,445 & 2009 was 409,575 which growth rate was 88% but members for the year 2011 was 516,725 which growth rate was only 21% over the year 2009. It is revealed from the above statement that the trend of growth of members of the Scheme has been deceased.

4. Sector-wise Investment performance (2011)

Tk. in million

5. It is found that IBBL’s RDS as a microfinance program conducting in the rural areas of the country and had to invest more in crop production, Vegetables & nursery, Fisheries, Poultry & duckery and overall agricultural sector but more investment is made in off-farm activities.

Current Market Size & Share by MFIs/NGOs-2011:

Tk. in million

6. It is evident from the above statement that the total portfolio of Microfinance in Bangladesh both Islamic and Conventional is Tk.108653.00 million where the Islami Bank’s RDS participation is only Tk.2242.00 million i.e. 2.06%.


Though the entry of Islamic Microfinance into the field of different NGOs microfinance markets in Bangladesh, it is difficult to sustain and develop the system. Islamic banks have to strive to solve all the problems, which stand in the way of their growth and survival. Some findings are as under:

1. Need distinct Organizations and Management Structure

2. Need for Islamic Microfinance expert & Bankers

3. Need for customers orientation in Islamic Microfinance & Banking

4. Theoretical research & knowledge sharing

5. No Regulatory Environment

6. Publicity, propagation & use of Media

5. Regulatory Environment

The relationship between Islamic banks and monetary authorities is a delicate one. The Central Banks exercise authority over their respective Islamic banks under laws and regulations engineered to control and supervise traditional banks.

The operations of Islamic microfinance do not come fully under the jurisdiction of the existing civil laws. If there are disputes to be handled, civil courts are not sufficiently acquainted with the rationale of the operations of Islamic Banking in most of the countries.
iii. Most important issue is that the Central Bank has been adopt “Microcredit Regulatory Authority-2006” under their regulatory frame work to conduct Microcredit program. But there is no guideline for Islamic micro finance operations of that regulation.

6. Publicity, propagation & use of Media

Islamic banks have so far ignored the use of media. Even the Muslims in many areas remain in dark about Islamic banking & Islamic microfinance that is being practiced in different parts of the world. Sadly, Islamic banks have failed to use the media effectively to publicize their activities. The authorities, concerned in Islamic banks should address these issues on a priority basis.




Despite various problems and shortcomings, the Islamic Banks have the potentiality to grow and expand its area of activities to bring good to the humanities. Some suggestive measures are appended below:

i. Since Microfinance alone can not alleviate poverty in its entirety, Social Safety Nets in the form of Zakat and transfer fund in the form of grant be initiated from the surplus generated out the commercial operation of the respective MFIs and donation from well to-do people and institutions in the locality and rich Muslim countries.

ii. IDB may take initiative for establishment of MFIs in the LDMC (Least Developed Member Countries) with its equity participation so that rapid expansion of branch network is possible with the permission of regulatory authority.

iii. Introduction of Islamic Banking Diploma Course be introduced for all Islamic bankers.

iv. The clients of the Islamic Banks be equipped with knowledge of Islamic banking through discussions, seminars, symposia etc.

v. Islamic banks can develop unanimous Shariah Manual or guidelines for day-to-day consultation and clientele motivation.

vi. The research and development (R & D) for Islamic Economics, Banking and Finance be geared up.

vii. Islamic Banks in Bangladesh may expand their network in the rural areas.

viii. Investment of the Islamic bank portfolio be diversified and extended for long term financing under Musharaka and Mudaraba.

ix. Co-operation among Islamic banks be extended at national level and throughout the world.

x. The central banks of the Muslim countries can help creation of environment for Islamic Banking with more responsibilities.


Microfinance, originated in Bangladesh has spread all over the globe. Today within the global coverage of Microfinance Bangladesh’s achievement stands out prominently. Despite hard competition among MFIs/NGOs operating in Bangladesh, IBBL’s RDS has made tremendous and remarkable progress practically in every sphere of its activities. This success has been made possible due to dynamic leadership of its management as well as devotion and sincerity of all categories of officers and executives. The Islami Bank Bangladesh Limited operates Microfinance somewhat on Shariah principle through its Rural Development Scheme. It has currently 916,725 members that include 750,278 borrowers having investment outstanding at Tk.5884.66 million as on December 2011.

IDB has proposed to establish a Micro-Finance Investment Company at its initiative together with IBBL and IBBL’s ‘High Valued Clients’ for integrated village development under private public partnership subject to due diligence and approval by the relevant authorities in IDB and Bangladesh. IBBL will introduce 5 to 10 High Valued Clients of IBBL for consideration as strategic partner in the proposed Microfinance Investment Company. In this connection IDB has requested to resolve all the above issues after having discussion with Bangladesh Bank and all other concerned authorities as soon as possible.

In this connection, it is strongly recommended that, Micro credit Summit should take a decision requesting all the Heads of under developed and developing countries to pursue all the private and public sector Financial Institutions in their respective countries for mandatory deploying at least 5% of their loan/investment portfolio in the Micro Finance Sector targeting poverty alleviation. It is also recommended, the respective Central Bank should allow willing Bank and Financial Institutions to float 100% own subsidiary company especially for the purpose of Micro Credit Operations targeting reduction of poverty along with opening necessary Branches/Offices without ermission of Central Bank for the purpose only.


1. Rahman, Mahfuzur and Rahman, Habibur: Islamic Financial System and selected Islamic Economic issues, Welfare publication, December 2007.

2. Raquib, Abdur, Islamic Banking in Bangladesh: Prospects & Problems (2007)

3. Mannan, Abdul, Morality and Its significance of Investment of IBBL, December, 2007

4. “Microfinance Statistics, Volume 19, “, Published by Credit and Development Forum (CDF), December 2006

5. Grameen Bank, BRAC, ASA: “Annual Reports of Various Years”, Dhaka.

6. Palli Karma-Sahayak Foundation (PKSF), “Annual Reports of Various Years”, Dhaka

7. Research Paper by Maxwell Stamp Ltd.: Feasibility Study for IDBs Microfinance Development Program, Bangladesh, July 2007

8. Service Rules of Rural Development Scheme of IBBL

9. Manual of Rural Development Scheme of IBBL

10. Annual reports of IBBL(2010-2011)

11. Different Operating/Investment Manual of IBBL

12. Haque, Obaidul: A Comprehensive Paper on RDS, Integrated Rural Development area approach, an analysis(December-2011)