This report will give a clear idea about total activities and its performance. Especially this report focuses on the “Analysis of Different Modes of Investment of Islami Bank Bangladesh Limited IBBL”. After reading this report it will be easy to get idea about establishment of Islami Bank Bangladesh Limited (IBBL). This report also focuses on performance evaluation of IBBL .This report also explains the general banking, Investment and Foreign Trade of IBBL .This report also contains findings, recommendation and conclusion.
IBBL is an Islamic Bank based on “Islamic Shariah”. It follows the alternative concept of Islamic Banking which represents unique human approach to credit and banking based on profit-oriented economy avoid of interest (RIBA). In this regard IBBL has introduced a number of income generating programs for the millions of urban and rural people. With that objective in view IBBL has formulated a profitable investment option for the rich and poor to earn and live in a better society with security and peace.
In this report there is discussion on topics of over all activities and the performance of IBBL. This report also discuss about deposit collection, investment policy, various type of deposit account and their characteristics.
This report also give clear idea about general banking, account opening procedures and the different department of general banking. Also some other basic functions like- maintaining cash or vault, keeping proper record of necessary papers and documents, handling evening banking and so on.
In this report we also provide some important and valuable information about general & other functions which we closely observed and done during working in Local Office of IBBL.
Introduction of Report :
Background of the Study:
The people of this country are deeply committed to Islamic way of life. 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 it is committed to conduct all banking and investment activities on the basis of interest-free profit-loss sharing system. People working abroad are remitting money into Bangladesh .But the general public along with others most likely to get involved in Foreign Exchange & Inward Transaction does not have a clear understanding there of Exposing foreign exchange & Inward Transaction practice is the pursuit of this report.
Rationale of the Study:
In our economy, there are mainly three types of schedule commercial banks are in operation. They are nationalized commercial banks, local private commercial banks and foreign private commercial banks. Islami Bank has discovered a new horizon in the field of banking area, which offers different General Banking, Investments and Foreign Exchange banking system. So, I have decided to study on the title “Analysis of Different Modes of Investment of Islami Bank Bangladesh Limited (IBBL)”.Because the internship program of the university is an integral part of the BBA program. This also provides an opportunity to the students to minimize the gap between theoretical and practical knowledge.
Objectives of the report:The first objective of the report is to fulfill the partial requirement of the BBA program. Secondly, to give an overview of Islami Bank Bangladesh Limited (IBBL) in general based on our work experience. The objectives of the report are:
- To understand Islamic view in banking sector and to find out the superiority of Islamic banking over conventional banking.
- To analyze Islami banking practice of Islami Bank Bangladesh Limited.
- To understand the various functions of Islami Bank Bangladesh Limited like general banking, Investment and Foreign exchange.
- To find out the problem and how to improve the performance of the IBBL.
- To make recommendation to eliminate the problems faced by Islami Bank Bangladesh Limited on it’s over all activities.
Scope of the report:
The scope of this report is confined to foreign exchange & Inward Transaction practice in Islami Bank Bangladesh Limited (IBBL). It should only cove how the bank manages import-export process as well as foreign exchange & foreign remittance.
Limitations of the study:
- Shortage of time period
- Busy working environment
- Insufficient Data
- Secrecy of Management.
The study requires a systematic procedure from selection of the topic to prepare the report. To prepare the report data sources are to be identified and collected, data to be classified, analyzed, interpreted and presented in a systematic way and it is must to find out the key points. This overall process of methodology is given in the below which has been follow to prepare the report.
- Topic selection: After an intensive fifteen (15) days training from IBTRA. With the discussion with our course coordinator we decide to make our report on “A study on Over all activities & performance of IBBL”
- Identifying data Sources: The report is prepared by using both primary and secondary data. But secondary data is mostly use to prepare this report.
Primary sources: Some required & important information came from primary sources. These sources are:
- Interviews and conversations with officers and executives of the bank from different divisions and departments.
- official records of Islami Bank Bangladesh Limited (IBBL)
- Observations of the work done by the different department.
Secondary sources: Most of the parts of the report and conceptual part have been collected from different secondary sources. Some of these secondary sources are:
- Annual Report of IBBL
- Different circulars issued by the IBBL
- Class notes of IBTRA.
- Different journals and articles.
Background of the organization:
An overview of the organization:
Establishment of Islamic Development Bank (IDB) by the OIC member states in the year 1975 has been proved to be a breakthrough in the expansion of Islamic Shariah 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.
Mission, vision, strategy statement:
Mission of IBBL:
- To Establish Islamic Banking through the introduction of welfare oriented banking system and also ensure equity and justice in the field of all economic activities, achieve balanced growth and equitable development through diversified investment operations particularly in the priority sectors and less developed areas of the country.
- To encourage socio-economic uplift and financial services to the low-income community particularly in the rural areas.
Vision of IBBL:
The Vision of IBBL is to always strive to achieve superior financial performance, be considered a leading Islamic Bank by reputation and performance.
- IBBL 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.
- IBBL will try to encourage savings in the form of direct investment.
- Also try to encourage investment particularly in projects which are more likely to lead to higher employment.
2011 Year of welfare & green banking.
(As On 31 December, 2010)
|Date of Incorporation||13th March, 1983|
|Inauguration of 1st Branch|
(Local office, Dhaka)
|30th March, 1983|
|Formal Inauguration||12th August, 1983|
|Share of Capital|
|Authorized Capital||Tk.20,000 Million|
|Paid-up Capital||Tk. 7,413.12 Million|
|Deposits||Tk. 291,347.00 million|
(including Investment in Shares)
|Tk. 292084.00 million|
|Foreign Exchange Business|
|Import||Tk. 246,281.00 million|
|Remittance||Tk. 214,629.00 million|
|Total number of Branches||251|
|Number of AD Branches||43|
|Number of Shareholders||52164|
Composition of the board:
The board of direction consists of 15 non-executive members .The number of board members is within the maximum limit set by the central bank .The board is composed of experienced members with diverse professional experiences .The board members are independent who express their views & opinions free from any influence. The directors are also independent from management, business/other relationship of the bank that could materials interfere the activities of the bank. The decision making process and practices are based on free exchange of views to make effective directors for the management which is one of the key responsibilities of the board.
Capital and reserves:
The Authorized Capital of the Bank is Taka 10,000.00 million and Paid-up capital is Taka 7,413.00 million in October, 2010. The Paid-up Capital was Taka 67.50 million in 1983.
The Reserve Fund of the Bank has been increasing steadily. on 31st December 1983, it was Taka 0.36 million and stood at Taka 13,927.96 million as on 31st December 2009 .
Milestones in the development of the organization:
The principles and working procedures of Islamic Banks are completely new and different from the conventional banks. There is an inevitable need for training of the employees of the banks to orient and attune them to the new system of Islami banking. To cater to this need, Islami Bank training and Research Academy (IBTRA) was established in 1984, soon after the inception of the Bank.
The activity of IBTRA covers both training and research on various aspects of Islamic banking. The Academy developed a rich library of its own with a treasure of valuable books on different subjects including Islamic economics, banking, comparative philosophies and journals of home and abroad and research articles and documents. Employees of the Bank, learners and researchers have been taking full advantage of the library.
The Academy edited books on “Readings in Islamic Banking” and “Investment Operations”. It also edited and published a brochure on “Investment and Trade Opportunities in Bangladesh.”
Keeping in view the existing and future training requirement of the Bank and also to generally cater such needs of different Islamic banking & financial institutions of the region, the management of Islami Bank Training and Research Academy has been placed at the disposal of an Academic Council consisting of 3 Directors of the Board, Management Executives of the Bank, Shariah scholar, renowned academicians and representatives of reputed institutions engaged in the training of bank officials of the country.
The Academy conducts training courses, and workshops. The courses include Islamic Banking, Banking Law and Practice, Investment Operations and Management, Foreign Trade and Foreign Exchange, Shariah Based Audit and Inspection.
Besides, orientation, induction, foundation and motivation courses on different subjects are also conducted round the year. In addition to conducting regular training courses, it arranges seminar on Islamic economics and banking and such other related topics of current interest.
Apart from this, an “Executive Development Programme” has been introduced at the Head Office of the Bank in Dhaka since 1988 for enriching knowledge and thought
process and developing professional skill of the Executives. This programme has proved to be effective and now being extended outside Dhaka. The Academy conducts internship courses for the students of different Departments of various Universities of the country. The Bank introduced annual award for the best three students of the Department of Banking and Finance of Dhaka University who secure 1st class 1st, 2nd and 3rd with ‘Islami Banking’ as special subject from the year1994.
The Bank is also providing financial assistance for publication of a textbook on ‘Islamic economics and banking’ for the university students.
Besides, a motivational programme has been introduced since 1987 for the clients of the Bank. Client-orientation programme are arranged at different branches for disseminating the concept of Islamic economics and banking and to acquaint the clients with the operations of Islamic banking system.
The Bank, in 1993, co-sponsored a 3-day International Seminar on ‘Islamic Common Market’ in which scholars, economists, bankers, industrialists and representatives of trade bodies of 15 countries participated. The Bank, with the collaboration of International Association of Islamic Banks (IAIB), organised an International Seminar on Islamic Banking in1985 and another International Seminar on Islamic Banking and Insurance in 1989.
Hierarchy of IBBL:
The management of Islami Bank limited acknowledges that risk is an integral part of business and attaches the importance to various risk involved in the banking business .The board of the bank has also endorsed the view of the management and instructed to implement the same in line with the directives of Bangladesh Bank .The bank has also taken initiatives to structure the banking activities in line with Bangladesh Bank’s risk management at guidelines.
The bank management of the bank cover a wide spectrum of risk issues and the 6(six) core risk areas of banking, investment risk, asset liability management risk,
internal control & compliance risk, money laundering risk & information technology risk, foreign exchange risk gave already been implemented by IBBL.
Now skilled and senior professionals man the risk areas. Accordingly, the Board of directors of IBBL has approved 6(six) risk management polices guidelines on the above . The management shall pay special attention to reduce the risk to an acceptable level apart from prudent controls over the banks assets.
|Md. Abdur Rahman Banerjee||Senior Vice President|
District-wise Branch distribution:
1. Dhaka Division
2. Chittagong Division
3. Khulna Division
4. Rajshahi Division
5. Barisal Division
6. Sylhet Division
General activities of the organization:
Account opening section:
Account Opening is the gateway for clients to enter into business with bank. It is the foundation of banker customer relationship. This is one of the most important sections of a branch, because by opening accounts bank mobilizes funds for investment. Various rules and regulations are maintained and various documents are taken while opening an account.
Who can open an account?
- Person over 18 (Eighteen) years.
- Account of club
- Account of associations
- Account of agent
- Govt. & Semi govt. organization
- Married Women
- Non-resident and so on.
Documents for opening some special account :
One who want to open an account, He/She has to fill up an account opening form. This form is a legal contract between the bank and prospective customers. The rules and regulations for opening of an account vary from customer to customer, if he wants to open different types of accounts. to open different types of account of the people who can introduces of the following requirements which are mentioned below:
- Bank provides account opening form to the prospective customer or applicant.
- Applicant fills up the form.
- An applicant submits the form dully signed by an introducer.
- The authorized officer scrutinizes the application form.
- If they are satisfied, they will open the account.
- They issue deposit slip and deposit must be made it.
- After deposition one cheque book is issued.
- Bank preserves the specimen signature card to verify the signature of the client.
- Account is opened.
Limited company :
- Copies of Memorandum and Articles of Association duly certified by the Register of JSC with up to date amendment & list of director.
- Duly attested copy of Certificate of Incorporation issued by the RJSC.
- Certificate of Commencement of Business (in case of public Ltd. Co.) .
- Resolution of Board of directors authorize the person / persons / to open & operate the A/C.
- Common seal of the company mentioning status of operator(s) should be affixed where necessary.
- Constitution/Buy-Laws etc. under which such Clubs & Societies have been established.
- Resolution of the Board/Management Committee for opening & operation of the account under official seal & signature to be obtained.
- List of Executive Committee/Managing Committee.
- Seal of the organization mentioning official status of the officer bearer authorized to operate the account should be affixed.
Savings account individual or joint:
- Genuine and acceptable introduction
- Attested photographs of the applicant
- Certificates from the chairman / commissioners or any responsible person
- Photocopy of National ID card
- Certificate of incorporation.
- Certified copy of resolution of the board of directors regarding opening of account.
- List of directors under the signature of the chairman
- Copied of latest financial statement / transaction profile.
Joint Accounts:Accounts are allowed to be opened in two or more (individual). Documents required are similar to those applicable to Individual Accounts. In case of Joint Accounts special instruction for opening the accounts must be mentioned in the A/C opening form, like either or survivor, any one can operate Jointly etc.
Other products and services
- Mudaraba Savings Account (MSA)
- Mudaraba Short Notice Deposit Account (MSND)
- Mudaraba Monthly Profit Deposit Scheme (MMPDS)
- Mudaraba Savings Bond scheme (MSBS)
- Mudaraba Muhor Savings deposit Scheme (MMSDS)
- Mudaraba Special Savings (pension) Scheme (MSS)
- Mudaraba Hajj Savings
- Mudaraba Waqf Cash Deposit Account
- Mudaraba Foreign Currency Deposit Scheme
Remittance in Bangladesh:Transmission/transfer of money from one place to another is called remittance. Local remittance represents remittance that takes place within the territory of a country. In spite of global financial crisis and return of our expatriates to a good number, the foreign remittance position was outstanding in 2010. IBBL with its sophisticated software, motivated and efficient employees has consolidated its position as the market leader in foreign remittance with 10% growth in 2010 as against 39% growth in 2009. IBBL handled 27.66% of foreign remittance of the country in 2010 as against 11.61% handled by the next competitor Sonali Bank Ltd.
The total remittance business of the bank during the year stood at Tk.214, 629 million which was Tk.19, 913 million higher than the total remittance of Tk.194, 716 million received in 2009.
Table – 1: Remittance in IBBL
(Million In Taka)
Foreign Remittance of IBBL 2006-2010:
IBBL has got 919 correspondent banking networks in 117 countries for smooth handling of its foreign trade and remittance business.
Remittance mainly two types:
- Inward Remittance
- Outward Remittance
Local Remittance :
Banks has a wide network of branches all over the country and offers various types of remittance facilities to the public. They serve as best media for remittance of funds from one place to another. This service is available to both customers as well as non-customers of the bank. The followings are some of the important modes of transferring funds from one to another through banks.
Remittances have been growing rapidly in the past few years and now represent the largest source of foreign income for our country.
The official data on the inflow of remittances into Bangladesh refers to the transfer of funds made by migrant workers through the banking channel is called inward remittance. Inward remittance mainly transfers in IBBL through some modes. Such as-
- Telegraphic Transfer
- Demand Draft
- Spot cash
- Foreign Demand Draft
- Foreign Currency Account etc.
Pay order issue:
Pay order is and instrument that is used to remit money within a city through banking channel the instruments are generally safe as most of them are crossed.
Charges for Issuing pay order:
|Tk. 1 to 10,000||Tk. 18/-|
|Tk. 10,001 to 1, 00,000||Tk. 23/-|
|Tk. 1, 00,001 to 5, 00,000||Tk. 35/-|
|Tk. 5, 00,001 to 10, 00,000||Tk. 46/-|
|Tk. 10,00,001 and Above||Tk. 58/-|
Vat: 15% of principle amount
Demand draft issue:
Demand Draft is 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 payment order is used for remitting money within the city whereas demand draft is used for within the country demand draft too constitutes current liability on the part of a bank. At IBBL demand draft is not sold to people other than its customer.
Charges for issuing Demand Draft:
|Tk. 1 to 10,000||Tk. 23/-|
|Tk. 10,001 to Above||Tk. 1 for every 1,000|
Vat: 15% of principle amount.
Telegraphic Transfer (T.T):
Telegraphic transfer is one of the fastest means of transferring money from one branch to another or from one to another. The T.T issuing bank instructs its counterpart by tested telex message regarding remittance of money. No instrument is given for T.T unless both parties have account, as money is transferred.
Charges for issuing T.T
|Tk. 1 to 10,000||Tk. 20/-|
|Tk. 10,001 to Above||Tk. 1 for every 1,000|
|Telephone Charge||Tk. 30/-|
Cash section demonstrates liquidity strength of a bank. It also sensitive as it deals with liquid money. Maximum concentration is given while wording on this section. As far as safety is concerned special precaution is also taken. Tense situation prevails if there is any imbalance in the case account. Operation cash sections are:
- Cash receipt
- Cash Payment
- Issuance of Cheque book
- Passing Cancellation & Payment of Cheque.
Mail transfer :
IBBL has operating its service with 215 branches .Online service is now available for all customers both cash deposit & withdrawals cheque deposits & transfer.
The main function of clearing section is to operate with safety and security of financial transaction of financial instrument like Demand Draft, Pay order, Cheque etc. on behalf of the customer through Bangladesh bank clearing House, outside bank clearing, inter branch clearing. This section examines in the following ways:
- Whether the paying bank within the Dhaka city
- Whether the payment is in their own branch. This cheque can be cleared by Local Bill of Collection (LBC).
- Whether the paying bank outside the Dhaka city then that cheque can be cleared by OBC (outward bills for collection).
Clearing is a system by which a bank can collect customers fund from one bank to another through clearing house.
- Clearing house
- Clearing house is a place where the representatives of different banks get together to receive and deliver cheque with another banks.
Normally, Bangladesh Bank performs the clearing house in Dhaka, Chittagong and Khulna & Bogura .Where there is no branch of Bangladesh Bank, Sonali Bank arranges this function.
Member of clearing house:Islami Bank Bangladesh Ltd. is a scheduled bank. According to the article 37(2) of Bangladesh bank order, 1972, the banks, which are the member of the clearing house, are called as scheduled banks. The scheduled banks clear the cheque drawn upon one another through the clearing house.
Inward Clearing:When the cheques of its customers are received for collection from other banks, the following should be checked very carefully:
- The cheque must be crossed.
- The collecting bank must check whether endorsement is done properly or not.
- The cheque should not carry a date older than the receiving date for more than 6 months.
- The amount both in words and figures in deposit slip should be same and also it should be conformity with the amount mentioned in words and figures in the cheques.
- Entry in the IBG register & also IBC number is given.
Outward Clearing:When the financial instruments like Payment Order ,Demand Draft, Cheques collected by specific branch within the Dhaka city and not of their own branch then the outward clearing will be functioned. The procedures of outward clearing are followed:
- The instruments with schedules to the Local branch of Islami Bank Bangladesh Ltd. with issuing an IBDA (Inter Branch Debit Advice).
- Clearing stamps are affixed on the instruments.
- Checked for any apparent discrepancy.
- The authorized signature endorses instruments.
- Endorsement gives payees account will be credited on realization.
- Particulars of the instruments and vouchers are recorded in the outward clearing register and OBC number is also given on the forwarding letter.
Responsibility of the concerned officer for the clearing cheque:
1) Crossing of the cheque
2) Computer posting of the cheque
3) Clearing seal & proper endorsement of the cheque
4) Separation of the cheque from deposit slip
5) Sorting of cheque 1st bank wise and then on branch wise.
6) Computer print 1st branch wise & then bank wise.
7) Preparation of 1st clearing house computer validation sheet.
8) Examine computer validation sheet with the deposit slip to justify the computer posting.
9) Copy of computer posting in to the store.
Cash section demonstrates liquidity strength of a bank. It also sensitive as it deals with liquid money. Maximum concentration is given while wording on this section. As far as safety is concerned special precaution is also taken. Tense situation prevails if there is any imbalance in the case account. Operation cash sections are:
- Cash receipt
- Cash Payment
- Issuance of Cheque book
- Passing Cancellation & Payment of Cheque .
- Cash receipt functions are directly handled by receiving cash.
- Clients have to fill up the pay slip clearly. Any discrepancies like cutting, erasing, overwriting should not be acceptable.
- It might be acceptable only it the depositor entrust his / her error by giving a signature beside that error which was done unwillingly.
- After revising all the information needed for receiving cash ( Amount in figure, wording of that amount, date, signature, full name, A/C no etc) carefully, the authorized officer receive the cash.
- Carefully count down the amount received and match that amount with the amount mentioned in the payment slip.
- Officer has to maintain a register book for the documentation of cash receipt.
- The registrar book contain the following heads i.e. serial no, account no, amount received, signature of the depositor (verification of A/C holder’s signature is not too much mandatory) and officer’s signature.
- Then the officer writes down serial number and paste the seal on both the side of that slip.
- The officer then sign on the posted seal and upon the head “Officer”.
- Last of all cut down the right of that slip and preserve it for posting or crediting client’s A/C after the transaction period (10.00 am to 4.00 pm).
Cash Payment:Cash payment function may be very much complicated because there is scope for making fraudulent activities. Both the client and the bank’s officers should always active about payment slip or cheque slip. Clients are always advised to keep cheque book in safe guard and it should always be filled just before withdrawal of cash. If cheque book is lost or stolen, clients should immediately order bank to stop payment against that account. Without any prior notice to stop payment, bank will not be liable for any kind of discrepancies. Payment of cash is done through three sequences. They are as in below:
Cutting Token:A register book is maintained for cutting token.
- Respective date should be marked first.
- Serial number should be posted previously to lessen the time because it’s a very busy segment of banking.
- Validity of the cheque should be carefully verified (validity of date- within 6 months, amount in figure and word, banks and branch name etc.)
- Whether “yourself” is written on the face of the cheque leaf or not.
- Account holders have to sign on required place as well as back side of the leaf (mandatory if bearer receives cash).
- If the account holder sends the bearer to receive cash, the leaf must be signed by the account holder and bearer name should be clearly written on the leaf at the required place. Both the bearer and account holder should sign on the leaf. Bearer will sign back to the leaf.
- Whether the leaf is “open” or “crossed”. If it is crossed, the bearer cannot withdraw cash.
- Now if the above things are ok, token can be cut down.
Checking payee’s Account through computer:
- Clients have to resubmit their leaf (other than token) in the computer counter.
- Authorized officer enter the account number into eIBS (specialized software for IBBL).
- If the account balance agree with the withdrawal of the amount of money (remaining the minimum balance), authorized officer debits the party’s account and credits the same to IBG account.
- If the operation is done by successfully, computer automatically gives an transaction ID.
- It should be written on the leaf with authorized signature.
- Then the authorized officer will pass it to another officer to verify the signature (scanned copy of card carry the picture & signature of the clients).
- After verification is done, it is then sent to the respective officer (with the seal “signature verified” and authorized signature) to pay the cash amount.
Payment of cash:
- Cash payment functions are directly handled by the paying cash counter.
- Respective officer call upon clients according to the token number. He maintains a register book also. It contains serial number, account number, account holder signature and authorized signature.
- After justifying the amount of withdrawal, payment will be made and cash payment seal will be posted with authorized signature & serial number.
Dishonor of cheques:
IBBL bankers can dishonor a cheque in the following situations:
- Insufficient Fund
- Amount in figure and word differs
- Cheque out of date / post dated.
- Drawer’s signature differs
- Payment stopped by Account holder
- Crossed cheque to be presented through a bank
- Payee’s endorsement required / Irregular / Illegible.
- Effects not cleared. May be presented again.
- Alternations in date / figure / words required drawer’s full signature.
- Clearing stamp required / requires cancellation / endorsement of the bank.
- Cheque crossed “Account payee only”.
- Collecting bank’s discharge irregular / require.
- Not drawn on us.
Principles of Deposit Collection:
Deposit is the life blood of a bank. From the history and origin of the banking system we know that deposit collection is the main function of a bank. IBBL collect deposit based on the following principles
Al-Wadia Principles:As per Shariah “Amanat” means to keep something to any reliable person / institution for safe and secured preservation of the same keeping its ownership unchanged and which will be returned to the owner of the fund on demand as its primary shape. In case of Amanat bank or any other person / institution can not use investment and amalgamate the fund of Amanat with the banks with any prior permission of the owner of the Amanat. But Al-Wadia principle indicates to some extend addition of the concept of Amanat, in which there is, a provision to obtain prior permission from the owner of the fund to use, invest, and amalgamate the said fund with their other funds and return the same within banking hour on demand. Bank is here muaddah and depositor is muaddi.
Mudaraba is a form of partnership where one of the contracting parties called the ‘Shahib-Al-Mal”, who provides a specified amount of capital and acts like a sleeping or dormant partner while the other party, called ‘Mudarib’ (Entrepreneur) who provides the entrepreneurship and management for carrying on any venture, trade, industry or service with the objective of earning profit. Under this arrangement profit is distribute under ratio and loss (if any) will be borne by “Sahib-Al-Mal’.
Principles of Distribution of profit to Mudaraba Depositors:
The principles of calculation and distribution of profit to Mudaraba depositors generally followed by Islami Bank Bangladesh Limited are as under:
Mudaraba depositors share income derived from investment activities i.e. from the use of fund.
Mudaraba depositors do not share any income derived from miscellaneous banking services where the use of fund is not involved, such as communication, exchange, service charge and other fees realized by the bank in connection with sale and purchase of Demand Drafts, Telegraphic Transfers and Mail Transfer etc.
Mudaraba deposits get priority in the matters of investment over bank’s equity and other cost free funds.
Mudaraba depositors do not share any income derived from investing bank’s equity and other cost free funds.
The amount of statutory cash reserve and liquidity reserve which are required to be maintained with Bangladesh Bank is deducted from the aggregate balance of Mudaraba deposits to arrive at the net balance of profit sharing deposit.
The gross income derived from investment during the accounting year is. at first allocated to Mudaraba deposits and cost free funds according to their proportion in the total investment.
Minimum 65% is distributed to Mudaraba depositors applying the rates of weight- age shone below. Mudaraba depositor’s share of 65% of gross investment income might further be raised by the bank’s management at its discretion to rationalize the rates of profit to Mudaraba depositors but it would not be reduced during any accounting year without giving prior declaration.
Successfully mobilized Tk.291, 283 million deposits from 49,39,502 depositors.
Table – 2: Deposit of IBBL
(Million In Taka)
Deposit Mobilization of IBBL 2006-2010:
The rest of gross investment income is retained by the bank as management fee for managing the investment and for making reserve for bad and doubtful investment
|Closing :||Tk. 800.50||Closing :||Tk. 804.00|
|Tk. 879.00||Highest :|
|Lowest :||Tk. 430.00||Lowest :||Tk. 380.00|
Types of Accounts with Terms & Conditions
(a) Al-Wadiah Current Account :
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 deposit are demand liabilities. Thus huge portion of fund becomes no performing. For this reason banks do not pay any of AWCA account holder. Businessmen and companies are the main customer of this product.
Terms & condition:
The depositors can deposit any amount in this account.
Minimum opening deposits of Tk.1000/- is required
Depositors can withdraw any amount by cheque.
No profit is allowed in this account as it is on performing
The depositors will also not bear any loss
Cheque, bills etc are collected in this account against commission
Incidental charge Tk.50/- half yearly basis is deducted from the account where minimum balance is not maintained. Closing charge Tk.300/- will be realized while closing the account.
Objectives:To lessen the risk of holding big amount of cash
To make easier business transaction
Mudaraba Savings Account
As per Bangladesh Bank instruction 90% of savings deposits are treated as time liability and 10% of it as demand liability. In IBBL there is a restriction about drawing money from MSA account. But any time account holder may draw any amount of money with prior notice. General house holder and individuals are the clients of this account.
Terms & Condition
Money can be deposited in transaction period of any working day
Withdrawal is not possible more than 4 times in a month.
1/4th of total balance or Tk. 100000 whichever is less is withdraw able
More than the above mentioned money is to be withdrawn by a written notice.
To lessen the risk of holding idle cash
To mobilize saving attitude of people.
Mudaraba Short Notice Deposit Account:
MSNA account can be treated as semi term deposit. Deposit should be kept in these accounts for at least seven days to get profit. Profit of MSNA accounts is less than MSA accounts. Cheque book is issued them but frequent use of cheque book is discouraged. Governmental 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.
Terms & Conditions:
Withdrawal at any time is possible with prior notice.
Minimum balance should be kept Tk.25000/- other wise it will not carry any profit. It may be closed at any time.
(d) Mudaraba Term Deposit (MTDR):
Fixed deposits are of two kinds:
- Midterm deposit (MTD) – 3 months, 6 months
- Term deposit (TD)– 12 months, 24 months and 36 months
Instrument whose maturity period is within one year are known as MTD and those above one year considered as term deposit. Calculation of profit on TD and provisioning regarding this is quite complicated issue. Profit ratio is frequently changed and local office informs to all branches of IBBL. Profit is calculated at each maturity date on the basis of this profit ratio and provision is made on that. Also at the month and provision of profit is made.
Terms & Conditions:
Lower limit is Tk.50, 000/- upper limit is not declared but any abnormality should be enquired bay authorized officer.
Encouraging all classes of people for depositing their gross idle money for a certain period and earns a profit.
Special Savings Schemes:
This is a deposit schemes based on Islamic Shariah principles where the depositor gets monthly profit out of his/her deposit / investment. The scheme is designed to attract:
- The retirement benefits of service holders
- The investment of wage earners who want to pay a fixed amount monthly to their families / dependants in Bangladesh from the profit of their investment.
- The deposit of those persons who intend to meet the monthly budget of their families from the income out of their deposit.
- Investment of fund of trusts and foundations that award monthly scholarship / stipends to students.
- Parents who want to defray the educational expenses of their children from the monthly profit of their deposit with the bank.
Terms & Conditions:
The depositors will be for a period of 5 years. The amount is refundable on maturity as per Mudaraba principles.
Under this scheme deposits will be received on Mudaraba principles in the amounts of Tk.100, 000/- and multiples of thereof.
Payment of profit: The depositors will receive estimated monthly profit out of the share of investment income calculated on the basis of the weight age determined for such depositors and to be adjusted on completion of each accounting year and declaration of final rate of profit.
Depositors under Mudaraba monthly profit deposit scheme will be accepted strictly on Mudaraba principles of Islamic Shariah and accordingly the The depositors must preserve the receipts properly and carefully. In case of loss or damage of the receipts, the depositors must inform the bank immediately for raking necessary precautions.
Profit of any accounting year will be declared after certifying the accounts of the bank by the auditors appointed by the shareholders in the Annual general Meeting (AGM).
The depositor may nominate one or more persons as his/her nominee of the account. In case of more than one nominee, he should fix their respective share in the nomination
Minors may also be named as nominee. In such a case he may also give written instruction as to who so to receive the amount in the event of his death before the attaining of maturity of the nominee(s).
The depositor may at any time nominate a nominee canceling the previous nominee in writing.
Normally, the deposit will not be encased before 5 (five) years. But if any depositor intends to withdraw his deposit before maturity due to certain unavoidable reasons, he would be allowed to do so, on the basis of written application.
Mudaraba Savings Bond Scheme (MSBS):
- To offer investment opportunity to the people and institutions who do not like to keep their savings and funds in interest bearing deposit accounts or invest in interest bearing schemes.
- To facilitate deposit and investment of funds of the wage earners and retirement benefits of the service holders.
- To encourage savings by offering a safe and profitable investment outlet through sharing of a portion of the profit out of investment of their deposited money as per Islamic Shariah.
- To extend the bank’s schemes for mobilizing of savings, generation of income, creation of employment and enhancement of wealth of the individual and the nation through profitable investment of these savings as per Islamic Shariah.
- To encourage participation of the people in Islamic banking system and development of the economy in line with the principle of Islamic Shariah.
Person(s) aged 18 years and above shall be eligible to purchase Mudaraba Savings Bond(s) in single name or joint names.
Educational institutions, clubs, associations and other non-trading and non-profit socio-economic institutions shall also be eligible to purchase bond(s) in the name of the institutions.
Guardian(s) shall be allowed to purchase bond(s) jointly with a minor mentioning the age of the minor. Payment against such bond(s) shall be made on the basis of joint signature after the minor attains majority.
Father / mother / Legal guardian shall be eligible to purchase these bonds on behalf of one or two minors mentioning the name and age of the minor(s) and also instructions regarding payment encashment.
Terms & Conditions:
Mudaraba savings bond shall be available in Tk.1,000/-, Tk.5,000/-, Tk.10,000/-, Tk.25,000/-, Tk.50,000/-, Tk.1,00,000/-, Tk.5,00,000/- and Tk.10,00,000/- denominations.
Purchase ceiling of Mudaraba savings bond is minimum Tk.1, 000/-. Any amount of bonds can be purchased subject to availability.
Mudaraba Muhor Savings Deposit Scheme (MMSDS):
Muhor is wealth, which a husband has to pay his wife, upon marriage. As per Islamic Shariah, it is compulsory for husband to pay this to his wife. But there are a good number of married men from all walks of life in our society who did not pay total Muhor to their wives. This scheme has been designed for all classed of people married particularly the professionals & service holders creating an opportunity for them to save in monthly installments according to their capability.
Any married citizen of the country with sound mind may open account in his wife’s name under MMSS by application in bank’s printed application form to be designed for this purpose.
To make people aware about Muhor.
To help the women protecting their basic rights determined by Allah.
Terms & Conditions
The scheme may be of two different terms: 5 and 10 years.
Accounts under this scheme may be opened for monthly deposits of Tk.500, 1000, 2000, 3000- 5000- only.
The account holder may nominate one or more persons as her nominee of the account.
Minors also may be named as nominee. In such a case she may also give written instruction as to who is to receive the amount in the event of her death.
The account shall be treated automatically closed if monthly installments are not deposited within the 25th day of each month.
If monthly installment falls in arrear within one year of the opening of the account and the deposits the same within the 25th of the following month with a written application showing valid reasons for such default, the account may be revalidated for operation.
If after on year of opening of the account 3 consecutive installments are not deposited, the account may be revalidated subject to deposit of all arrear installments within 25th day of the 4th month with a written application showing valid reasons for such default.
The client shall get 5 chances for 5 years accounts, 10 chances for 10 years account to revalidate the account.
In case of automatically closed accounts, the depositors shall get profit applicable as per terms.
Mudaraba Special Savings (Pension) Scheme (MSS):
Islami Bank Bangladesh Limited, in keeping with its welfare- oriented ideals based on Shariah principles, has developed a deposit pension scheme named MSS, in order to mobilize and encourage the middle and lower middle class professional and service holders to save as per their capacity for their old age when they will normally retire from their active service life who otherwise do not like to keep and investment their savings and funds in interest bearing deposit pension scheme. Due to lack of or limited scope for savings and investment in non-interest bearing schemes, most of these individuals either consume their savings / funds or spend the same in unproductive expenditures. thus a substantial amount of savings / funds remain out of the production cycle.
Terms & Conditions :
Accounts under this scheme may be opened for monthly deposits of Tk.100/- (only for RDS member) and Tk.200/- to Tk.20, 000 only.
For 5 years and 10 years.
(i) Mudaraba Hajj Savings:
Islami Bank Bangladesh limited has introduced “Hajj Savings Scheme” so that persons eager to perform holy hajj may build-up savings through “Mudaraba Hajj Savings” account.
Mudaraba Hajj Savings account can be opened in the name of the individual only.
Deposits in this account are received on the basis of Mudaraba principles of Islami Shariah.
No photography is required to open this account.
The bank issues pass-book against this account. After deposit of each installment, the depositors must ensure that such deposit is recorded in the pass-book.
The account holder must immediately communicate to the bank of any change if the address.
Mudaraba Waqf cash Deposit account:
Mudaraba waqf cash deposit account is a special scheme through which savings made from earnings for the purpose of waqf by the well-off and the rich people of the society can be mobilize and the income to be generated there from may be spent for different benevolent purpose. Through the scheme the bank will be able to contribute to popularize the role of waqf in the country including cash waqf which will be instrumental in transferring savings of the rich to the members of the public, in financing various religious, educational and social service in Bangladesh. Under this scheme one can create cash waqf at a time or may start with minimum deposit of Tk.10, 000/- and the subsequent deposit shall be made by installment in thousand Taka or in multiple of thousand of Taka. Higher profit is given against this account. Profit from this account is utilized for social and human welfare as per instruction of the account holder.
Mudaraba foreign Currency Deposit account:
Mudaraba foreign currency deposit scheme has been introduced under Mudaraba principle and endeavoring to invest the foreign currency funds in profitable way through its foreign correspondent banks under Shariah principles as to enable the bank to pay profit to its FC / PFC depositors, who will intend to open / maintain Mudaraba foreign currency deposit account in minimum $1,000 dollar.
Credit & Risk Management (CRM):
Investment (Credit) risk is one of the major risk faced by the bank .This can be described as potential loss arising from the failure of counter party to perform as contractual agreement with the bank. The failure may result from unwillingness of the counter party or decline in his/her financial condition. Therefore, Bank’s Investment (Credit) risk management activities have been designed to address all these issues.
Loans and Investment:
Qard Hasan (benevolent loan):Since interest on all kinds of loan is prohibited in Islam, a loan, which is to be given in accordance with the Islamic principle, has to be, by definition, a benevolent loan (Qard Hasan), i.e. a loan without interest. It has to be granted on the grounds of compassion; to remove the financial distresses caused by the absence of sufficient money in the face of dire need. Since banks are profit-oriented organizations, it would seem that there is not much scope for the application of this technique. However Islamic banks also play a socially useful role. Hence, they make provisions to provide Qard Hasan besides engaging in income generating activities. However practices differ in this respect. “Some banks provide the privilege of interest free loans to the holders of investment accounts at the bank. Some other banks have the provision to provide interest free loans to needy students and other economically weaker sections of the society. Yet, some other banks provide interest free loans to small producers, farmers, entrepreneurs who are not qualified to get financing from other sources .The purpose of these interest-free loans is to assist them in becoming financially independent or to assist in raising their incomes and standard of living” (Ausaf Ahmed 1992, p.86).
Objectives of loan classifications:
1. Find out net work/adjusted capital of a bank.
2. Held for assessing financial soundness of a bank.
3. Calculate the required provision & the amount of profit suspense.
4. Put the bank on sound footing in order to develop sound banking practice in Bangladesh.
Importance of classification of investment:
1. To regularize follow-up & monitory activity.
2. To improve investment recovery position.
3. To raise a fund (reserved fun provision gradually this may help the bank to lessen the burden of investment loss in a single year.)
4. To formulate and activating planning for future courser of action.
Foreign Exchange means foreign currency and it includes any instrument drawn, accepted made or issue under clause (13) Article 16 of Bangladesh Bank Order 1972.All deposits credits and balances payable in any foreign currency and draft travelers cheque, letter of credit and bill of exchange expressed or drawn in Bangladeshi currency but payable in any foreign currencies.
According to the Article 2nd Foreign Exchange Act 1947:
Foreign Exchange means Foreign Currency i.e. Currencies other then Local Currency. It includes any instrument drawn, accepted, made or issued all deposit, credit and balances payable in any foreign currency.
A. Foreign exchange deals with trading of foreign currency.
B. Foreign trade deals with trading of goods and financing in import and export import and export.
Dealing in foreign currency or foreign exchange is done by way of:
- Cash over the counter: Cash currencies in the form of notes/coins/Travelers’ cheques are sold/purchased over the counter on spot basis Bank earns exchange income and commission.
- Corporate dealing arising out of foreign trade import/export/foreign remittance
- Independent trading to gain from the market.
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