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Performance Evaluation Of Investment Mechanism of Islami Bank Bangladesh Limited

1.1: Introduction:
Todays business world is continuously changing. The operation of business is getting complex
in every moment. That is why, today, the management of any business activity requires so much
expertise from the part of its employees. The business graduates are the core part of
management. So a business graduate has to have so much theoretical as well as practical
knowledge to manage the ever-changing business activity. Besides the theoretical knowledge,
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Performance Evaluation Of Investment Mechanism of Islami Bank Bangladesh Limited


practical experience is provided to business graduates & internship is the well-practiced
mechanism in this regard. The internship program is an integral part of the BBA program. As a
student of BBA program of International Islamic University Chittagong, Dhaka Campus
everyone has to submit a report after completion of internship program. I was assigned to
Islamic Bank Bangladesh Limited to complete the program.
As a student of BBA major in Finance, internship is an academic requirement. For doing
internship I was sent to the
Islamic Bank Bangladesh, Dhanmondi Branch, and under the supervision of Tabassum
Siddique Assistant professor Marketing and Department of Business Administration,
International Islamic University Chittagong, Dhaka Campus.
The completion of my general class for internship program in Islamic Bank Training and
Research Academy (IBTRA), the IBTRA authority gave me the selecting topics for preparing
the internship report. My supervisor, Tabassum Siddique Assistant professor of Department of
Business Administration, also support me to prepare a report on Islamic Bank Bangladesh
Limited with special focus on PERFORMANCE EVALUATION OF INVESTMENT
MECHANISM OF IBBL. That is why I have made this report with this topic.
1.2: Origin of the study:
Internship is an important & unavoidable part for completing the graduation in business studies.
Internship can help the students to acquire practical knowledge about his or her particular
learning. For the four years BBA program, internship is a major requirement for sharing
knowledge & to gather knowledge. I need to do my internship in any business organization that
is well reputed in its field. I have got a great opportunity to involve in a leading commercial
bank namely ISLAMI BANK BANGLADESH LIMITED which is a recognized bank not
only in our country but also all over the world.
Islami bank Bangladesh is one of the nations leading banking specialties of uncompromising
quality in several world class banking. The leading banking company of Bangladesh has been
making every effort to ensure the effectiveness and safety of the financing which it makes sure.
Islami bank provide the highest quality financing at comfortable facilities to fulfill the needs of
the millions of people of the country. Regular introduction of innovative system in line with the
needs of customers has been the key to the companys success over the years.IBBL always
follows some basic criteria to satisfy the quality management. Their mechanism assurance
system establishes control or checkpoint to ensure the quality of the investment during a certain
period.
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1.3: Objectives of the Study:
To highlight the investment mechanism of Islami bank Bangladesh Ltd.
To evaluate the performance of investment of Islami bank Bangladesh Ltd in terms of modes,
sectors, industry over the last five years.
To recommend action to overcome the problems identified in the current practice of investment
of IBBL.

1.4: Significance of the study:


There are three types of schedule commercial banks are in operation in our economy. They are
Nationalized Commercial Banks, Local Private Commercial Banks and Foreign Private
Commercial Banks. Islami Bank has discovered a new horizon in the field of banking area,
which offers different General Banking, Investments and Foreign Exchange banking system. So
I have decided to study on the topic Investment Mechanisms of Islami Bank Bangladesh
Ltd.. Because the Dissertation report of the university is an integral part of the BBA program.
So it is obligatory to undertake such task by the students who desirous to complete and
successfully end-up their MBA degree. This also provides an opportunity to the students to
minimize the gap between theoretical and practical knowledge. During the Dissertation report
the teachers of the department are attached to actively and constantly guide the students.
Students are required to work on a specific topic based on their theoretical and practical
knowledge acquired during the period of the internship program and then submit it to the
teacher. That is why we have prepared this report.
1.5: Methodology of the Study:
Different data and information are collected from various sources, such as primary and
secondary which is given belowSecondary sources of data:
Financial report of Islami Bank Bangladesh Ltd.
Different circulars issued by the head office and Bangladesh Bank
Files and Folders
Memos and Circulars
Internet
Various publications on bank
Bank Document.
Other manual information from Islamic Bank Training and Research Academy (IBTRA).
Desk report of the related department.
1.6: Limitations:
1. Confidential information:
Some desired information could not be collected due to confidentiality of the bank.
2. Password:
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Performance Evaluation Of Investment Mechanism of Islami Bank Bangladesh Limited


Due to secret and safety purpose all the computer has passwords. At the time of working, I
faced problems for it as the passwords had not given to me. It was very time consuming as I
had to wait until any officer come and give the password.
3. Lack of experience.
4. Financial Report:
Financial Report (2014) of IBBL is one of the vital resources of information which reached to
me approximately at the end of internship program and it made the total working procedure of
making report very slow.
5. Lack of time:
Through the whole internship program I have to work in different desks. Therefore, I did not
get sufficient time for information collection.
6. Learning all the banking functions about credit within just two and half months was
really tough.
7. Lack of current information.
1.7 Scope:
In this report I have focused on all the qualitative which include profiles of IBBL, investment
modes like Bai mode, Profit & loss sharing, bearing mode, Rent sharing mode, different
schemes of investment such as household durable schemes, housing investment scheme,
transport investment scheme, car investment scheme, investment scheme for doctors small
business investment scheme, rural development scheme, etc. This report is confined to only this
bank other than conventional bank.

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2.1:Islami Bank Bangladesh Limited: At a Glance

Name of the company


Legal form

Islami Bank Bangladesh Limited


(IBBL)
Public Limited Company

Date of incorporation

13th March, 1983

Inauguration of 1st branch

(Local office, Dhaka) 30th March 1983

Formal inauguration

12th August, 1983


Islami Bank

Tower, 40, Dilkusha


Commercial Area, Dhaka-1000

42.12%
58.03%
Tk.
20,000.00 Million
Tk.
14636.28 Million
Tk.
(Provisional)
Investments (including Investment in Shares)

417,844.17

Million

Tk. 414,629 Million (Provisional)

Tk.
284,588 Million (Provisional)
Export

Tk. 197,095 Million (Provisional)


Tk.

300,915 Million (Provisional)


Number of Branches

286

Number of SME Service Centers


Total Branches
Number of AD Branches

30
316
43
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Performance Evaluation Of Investment Mechanism of Islami Bank Bangladesh Limited


Number of Shareholders

63,001

Manpower

11,465

2.2:Historical Background:
In the late seventies and early eighties, Muslim countries were awoken by the emergence of
Islami Bank which provided interest free banking facilities. There are currently more than 300
interest free institutions all over the world. Islamic Bank now a days not only operate in almost
all Muslim countries but have extended their wings to the western world to serve both Muslim
and non Muslim customers. In case of Islami Banking, the establishment of Mitghamar Local
Savings Bank in 1963 is said to be a milestone for modern Islami Banking. The history of
Islami Banking can nevertheless be traced back to the birth of Islam.
In 1974, Bangladesh signed the Charter of Islamic Development Bank and committed itself to
reorganize its economic and financial system as per Islamic Shariah (legal framework of
Islamic Ideology).
In 1978, Bangladesh recommended in Islamic Foreign Minister Conference in Senegal towards
systematic efforts to Islamic Banking.
In 1980, Foreign Minister Conference in Pakistan where Bangladesh Foreign Minister Prof.
Shamsul Hoq, proposed for taking steps for Islamic Banking.
Further, Bangladesh Bank sent representation abroad to study Islamic Banking System.
Also, International Seminar held in Dhaka inaugurated by Bangladesh Bank Governor for early
introduction of Islamic Banking.
In 1981, President of the Peoples Republic of Bangladesh addressed the 3rd Islamic Summit
Conference held at Makkah and Taif suggested, ''The Islamic countries should develop a
separate banking system of their own in order to facilitate their trade and commerce.'
In 1982, IDB visited Bangladesh for study. They found contributions done by Islamic
Economics Research Bureau (IERB) and Bangladesh Islamic Bankers Association (BIBA);
they mobilized the seminars, public opinion through symposia & workshop. Professional
activities reinforced by Muslim Businessman Society (now reorganized as Industrialists and
Businessman Association). The body mobilized mainly equity capital for emerging Islamic
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Bank. Finally, in 1983 Islami Bank Bangladesh Limited (IBBL) came out to take the challenge
of doing banking business.
Islami Bank Bangladesh Limited (IBBL) is considered to be the first interest free bank in
Southeast Asia. It was incorporated on 13-03-1983 as a Public Company with limited liability
under the companies Act 1913. The bank began operations on March 30, 1983, with major
share by the foreign entrepreneurs.

2.3: Function of IBBL:


To maintain all types of deposit accounts.
To make investment.
To conduct Foreign Exchange Business.
To extend other banking service.
To conduct social welfare activities through Islamic Banking Foundation.
2.4: Mission:
To establish Islamic Banking through the introduction of a welfare oriented banking system and
also ensure equity and justice in the field of all economic activities, achieve balanced growth
and equitable development in through diversified investment operations particularly in the
priority sectors and less developed areas of the country. To encourage socio-economic
upliftment and financial services to the loss-income community particularly in the rural areas.
2.5: Vision:
Our vision is to always strive to achieve superior financial performance, be considered a
leading Islamic Bank by reputation and performance.
Our goal is to establish and maintain the modern banking techniques, to ensure soundness and
development of the financial system based on Islamic principles and to become the strong and
efficient organization with highly motivated professional, working for the benefit of people,
based upon accountability, transparency and integrity in order to ensure stability of financial
systems.
We will try to encourage savings in the form of direct investment.
We will also try to encourage investment particularly in projects which are more likely to lead
to higher employment.
2.6: Strategic Objectives:
To ensure customers' satisfaction.
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To ensure welfare oriented banking.
To establish a set of managerial succession and adopting technological changes to ensure
successful development of an Islamic Bank as a stable financial institution.
To prioritize the clients welfare.
To emerge as a healthier & stronger bank at the top of the banking sector and continue stable
positions in ratings, based on the volume of quality assets.
To ensure diversification by Sector, Size, Economic purpose & geographical location wise
Investment and expansion need based Retail and SME/Women entrepreneur financing.
To invest in the thrust and priority sectors of the economy.
To strive hard to become an employer of choice and nurturing & developing talent in a
performance-driven culture.
To pay more importance in human resources as well as financial capital.
To ensure lucrative career path, attractive facilities and excellent working environment.
To ensure zero tolerance on negligence in compliance issues both Shariah and regulatory
issues.
To train & develop human resources continuously & provide adequate logistics to satisfy
customers need
. To be excellent in serving the cause of least developed community and area.
To motivate team members to take the ownership of every job.
2.7: Essential Features Of Islami bank:
Prohibition of interest: The traditional capitalist banking system depends on interest. It
receives interest for providing loans and pays interest for taking loans. The spread between
these two interests is the source of its profit. But according to Islamic Shariah all types
of interest is banned. So, Islamic bank does not carry on business of interest and it completely
avoids the transaction of interest.
Investment based on profit: After departing from interest, the alternate ways of income for
Islamic bank is investment and profit. Thus IBBL gives up any transaction of interest and
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makes investments based on profit. Bank distributes its profit to its depositors and
shareholders.
Abolition of interest (Riba): Since Riba is prohibited in the Quran and interest in all its forms
is akin to Riba, as confirmed by Fuqaha and Muslim economists with rare exceptions, the first
distinguishing feature of an Islamic bank must be that it is interest-free.
Adherence to public interest: Activity of commercial banks being primarily based on the use
of public funds, public interest rather than individual or group interest will be served by Islamic
commercial banks. The Islamic banks should use all deposits, which come from the public for
serving public interest and realizing the relevant socio-economic goals of Islam. They should
play a goal-oriented rather than merely a profit-maximizing role and should adjust themselves
to the different needs of the Islamic economy.
Multi-purpose bank: Another substantial distinguishing feature is that Islamic banks will be
universal or multi-purpose banks and not purely commercial banks. These banks are conceived
to be a crossbreed of commercial and investment banks, investment trusts and investment
-management institutions, and would offer a variety of services to their customers. A substantial
part of their financing would be for specific projects or ventures. Their equity-oriented
investments would not permit them to borrow short-term funds and lend to long-term
investments. This should make them less crisis-prone compared to their capitalist counterparts,
since they would have to make a greater effort to match the maturity of their liabilities with the
maturity of their assets.
More careful evaluation of investment demand: Another very important feature of an
Islamic bank is its very careful attitude towards evaluation of applications for equity oriented
financing. It is customary that conventional banks evaluate applications, consider collateral and
avoid risk as much as possible. Their main concern does not go beyond ensuring the security of
their principal and interest receipts. Since the Islamic bank has a built in mechanism of risk
sharing, it would need to be more careful in how it evaluates financing requests. It adds a
healthy dimension in the whole lending business and eliminates a whole range of undesirable
lending practices.
Work as catalyst of development: Profit-loss sharing being a distinctive characteristic of an
Islamic bank fosters closer relations between banks and entrepreneurs. It helps develop
financial expertise in non-financial firms and also enables the bank to assume the role of
technical consultant and financial adviser, which acts as catalyst in the process of
industrialization and development.
2.8:Principal Activities of IBBL:
All kinds of commercial banking service e.g. acceptance of deposited, providing of investments
issuance of bank guarantees, demand draft, telegraphic transfer, payment order, & providing of
banking services through on-line, ATM, SMS& all services related to foreign exchange
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business including import, export & remittance are being provided by the bank to the customers
following the principles of Islamic Shariah, the provisions of the Bank company Act 1991 and
Bangladesh Banks & other regulatory authorities directives.
2.9:Membership & Affiliation:
IBBL has become a member of Dhaka Stock Exchange in 2006. It has started opening of 2
subsidiaries namely Islami Bank Securities Limited & Islami Bank Capital Management
Limited. IBBLs memberships in National bodies are as follows:

Bangladesh Institute Of Bank Management (BIBM)


The Institute Of Bankers, Bangladesh(IBB)
Bangladesh Association Of Banks (BAB)
Bangladesh Foreign Exchange Dealer Association (BAFEDA)
Central Shariah Board For Islamic Banks In Bangladesh(IBCF)
Dhaka Chambers Of Commerce & Industry (DCCI)

IBBL Is A Member Of the Under Noted Foreign Organizations:

Accounting & Auditing Organizations For Islamic Financial Instructions (AAOIFI)


Council For Islamic Banks & Financial Institutions(CIBAFI)
International Chamber Of Commerce Bangladesh
Islamic Financial Service Board (IFSB)
International Islamic Financial Market (IIFM)
International Islamic Center For Reconciliation & Arbitration(IICRA)
2.10:Shariah Council:
The Shariah Supervisory Committee of the Bank plays a vital role in framing and exerting
policy for strict adherence of Shariah principles in the Bank. As per Islamic Banking Guideline
circulated by Bangladesh Bank, The Shariah Supervisory Committee is represented by 12
members consisting of prominent Ulama having adequate knowledge in Fiqhul Moamalat,
renowned lawyers and eminent economists. The Shariah Supervisory Committee of IBBL
gives opinions and guidelines to implement and comply of Shariah principles in all activities
of the Bank particularly in the modes of investment. The Committee is governed by a bye-laws
approved by the Board of Directors.
As part of major responsibilities of the Committee Shariah, inspections is also conducted in all
the branches under its direct supervision to ensure Shari`ah compliance in all activities of the
Bank.
2.11:Branch Expansion:
The particulars of Zones, branch & SME/Agriculture branches are given below:
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Serial no.

Name of the Zones

No. of branches

Dhaka Division

86

01

Dhaka Central Zone

15

02

Dhaka North Zone

21

03

Dhaka South Zone

26

04

Corporate Branches

04

05

Mymensingh Zone

20

Chittagong Division

80

06

Chittagong North Zone

18

07

Chittagong South Zone

22

08

Comilla Zone

21

09

Noakhali Zone

19

Khulna Division
10

Khulna Zone

Sylhet Zone

26
02
20

Rangpur Division
12

01

Rangpur Zone

17

Rajshahi Division

34

13

Rajshahi Zone

17

14

Bogra Zone

17

Barisal Division
15

Barisal Zone

09

03

Sylhet Division
11

No. of
SME/Agriculture
branches
08

06

01
23

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Total

286

30

Table: IBBL Branch Expansion


2.12:Paid-up Capital & Reserve:
The Authorized Capital of the Bank is Tk. 20,000.00 Million ($244.87 Million) and Paid-up
capital is Tk. 14636.28 Million($188.25 million) in 31-12-2013. 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:
Date
31-12-2012

Amount
12,509.64 million

31-12-2011

10,007.71 million

31-12-2010

7,413.12 million

31-12-2009

6,177.60 million

31-12-2008

4,752.00 million

31-12-2007

3,801.60 million

31-12-2006

3,456.00 million

31-12-2005

2,764.80 million

31-12-2004

2,304.00 million

31-12-2003

1,920.00 million

31-12-2002

640.00 million

31-12-2001

640.00 million

31-12-2000

320.00 million

Table: Paid-up Capital & Reserve of IBBL

2.13: Core Values:


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Trust in Almighty Allah
Strict observance of Islamic Shariah
Highest standard of Honesty, Integrity & Morale
Welfare Banking
Equity and Justice
Environmental Consciousness
Personalized Service
Adoption of Changed Technology
Proper Delegation, Transparency & Accountability
2.14:Commitments:
To Shariah
To the Regulators
To the Shareholders
To the Community
To the Customers
To the Employees
To other stakeholders
To Environment
2.15: Products and Services:
Under products and services Islami Bank Bangladesh Ltd. has below categories:
1. DEPOSIT SCHEMES:
Al-Wadeah Current Account (AWCA)
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Mudaraba Savings Account (MSA)
Mudaraba Term Deposit Account (MTDR)
Mudaraba Special Notice Account (MSNA)
Mudaraba Hajj Savings Account (MHSA)
Mudaraba Special Savings (Pension) Account (MSSA)
Mudaraba Savings Bond (MSB)
Mudaraba Monthly Profit Deposit Account (MMPDA)
Mudaraba Muhor Savings Account (MMSA)
Mudaraba Waqf Cash Deposit Account (MWCDA)
Mudaraba NRB Savings Bond (MNSB) Account
Mudaraba Foreign Currency Deposit Account (MFCD)
Students Mudaraba Savings Account (SMSA)
Mudaraba Farmers Savings Account (MFSA)
2. INVESTMENT MODES:
BAI- Modes:
Bai-Murabaha
Bai-Istijrar
Bai-Muajjal
Bai Salam
Istisnaa
Bai-As-Sarf
SHARE- Modes
Mudaraba
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Musharaka
IJARA-Modes
Hire Purchase under Shirkatul Melk (HPSM)
Under this mode Bank may supply implements/ equipment/goods on rental basis. The
ownership of the implements/equipment/goods will be with the Bank and the client jointly and
the portion of the client will remain to the Bank as mortgage until the closure of the investment
account, but the client will be authorized to possess the equipment for certain period. The
client, after completion of the installments, will be the owner of the implements/
equipment/goods.
3. INVESTMNET SCHEME:

Household Durable Scheme


Housing Investment Scheme
Real Estate Investment Scheme
Transport Investment Scheme
Car Investment Scheme
Investment Scheme for Doctors
Small Business Investment Scheme
Agriculture Implements Investment Scheme
Rural Development Scheme
Woman Entrepreneurs Investment Scheme
Micro Industries Investment Scheme
Mirpur Silk Weavers Investment Scheme
NRB(Non Resident Bangladeshi) Entrepreneurs Services
Investment Scheme for Foreign Expatriate
Mudaraba NRB Saving Bond
Remittance Card.
Rural Development Scheme: Islami Bank Bangladesh Limited launched its Rural
Development Scheme (RDS) in 1995. In the mean time, 197 Branches of the Bank have been
operating the activities of the Scheme in their respective areas. These Branches are working
among the poor in 15,370 villages covering 1251 unions under 392 Thanas of 61 districts of
the country. Present number of members is 5, 01,941 since beginning the scheme. The members
are provided investment facilities an amount of BDT 28,100.10 million ($ 407.25m) up to 3006-2012 against which the outstanding was BDT 4,320.41 million ($ 62.61m). Rate of recovery
of the Scheme is more than 99%.

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Locker Service: IBBL safe deposit locker service offered from select branches gives you a
completely secured facility for safekeeping of precious items, confidential documents and other
valuables.

Services:
Personalized service
Facilities to access outside scheduled time
Parcel handling
Safe custody of goods and bonds/shares
Lockers available in various sizes. I.e. Small, Medium and Large.
Charges:
Yearly Charges: Small- Tk.700/-, Medium- Tk. 1000/-, Large- Tk. 1,500/ Security Deposit (Tk.) 500.00 (refundable).
The rent may be conveniently paid from your deposit account with us.
Direct debits for locker rentals from your account rid you of the hassles in writing
out cheques.
Foreign Exchange Business: There are 18 foreign representatives of IBBL in 6 countries such
as Oman, UAE-Dubai, Singapore, Qatar, and KSA-Riyadh, Bahrain.
Others Services:
One line banking
SMS banking
SWIFT(Society for Worldwide Inter-Bank Financial Telecommunication)
Remittance Card Service
ATM card service
Internet Banking Service
VISA card
M cash /Mobile Banking
2.16:Core Risk Management:
As per guidelines given by Bangladesh Bank, the bank has by this time

prepared &

introduced manuals on:

Asset Liability management


Investment (credit) risk management
Foreign exchange management
Internal control & compliance
Prevention of money laundering
Information & Communication Technology Risk Management
Accounts & Finance
2.17:Achievements of IBBL:

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Obtaining best Bank Award from the ministry of expatriates welfare and overseas
employment among the participant Banks on the occasion of International Migrants
Day2012.
obtained membership of American Chamber of Commerce(AMCHAM)
Participated in Remittance Fair in South Korea, Malaysia, Singapore and Kuwait with
huge response of expatriate Bangladeshis particularly in our stall.
Obtained 3 AD licenses Viz . Mtijheel Branch, Dhanmondi Branch&pahartoli Brach
South Asian Federation of Accountants (SAFA) awarded IBBL as joint Winner in the
Corporate Governance Disclosure Award-2010.
South Asian Federation of Accountants (SAFA) also awarded IBBL with Certificate of
Merit in Banking Sector in the Annual Report for the year 2010.
The Institute of Cost and Management Accountants of Bangladesh (ICMAB), awarded
IBBL as the ICMAB National Best Corporate Award-2007 (First Position, Local Bank)
and ICMAB Best Corporate Performance Award 2008 (Second Position, Private
Commercial Bank).
The Institute of Chartered Accountants of Bangladesh (ICAB) awarded IBBL with 3rd
position under the catergory-1, banking in the best published accounts and reports for
the year 2010, the Certificate of Appreciation for the year 2001 & 2010 and Certificate
of Merit for the year 2008.
ICICI Bank, Hong Kong, awarded IBBL as The Quality Recognition Award-2009 for
U.S. Dollar Clearing (2009).
Bankers Forum awarded IBBL as the Best Bank for Corporate Social Responsibility for
2008 and 2009.
The Bank-Bima Patrika, a Fortnightly Magazine, awarded IBBL as the Best Islami
Banking Award 2007.

2.18: Corporate Information:


Financial Information

BDT (Tk.)

US Dollar ($)

Authorized Capital

20,000.00 Million

257.23 Million

paid-up Capital

14,636.28 Million

188.25 Million

Equity

45,511.90 Million

385.36 Million

Reserve Fund

29,149.01Million

374.91 million

Deposits

473,140.96 Million

6,085.41 Million

Investment
(including Investment in
Shares)

474,015.95 Million

6,096.67 Million

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Foreign Exchange
Business

BDT (Tk.)

US Dollar ($)

Import

285,890 Million

3,677.04 Million

Export

205,269 Million

2,640.12 Million

Remittance

286,956 Million

3,690.75 Million

Organizational Information:
Branchesof IbbL
Total number of branches

286

Total number of SME Krishi Branches

30

TOTAL BRANCHES

276

Total number of AD Branches

48

Total number of ATM Booth

298

Number of Shareholders

33686

Manpower

11381

Organizations
Name of Chairman Prof. Abu Nasser Muhammad Abduz Zaher
Name of Managing Director

Mohammad Abdul Mannan

Company Secretary
Name of CFO

Abu Reza Md. Yeahia (C. P.)


Mohammad Nesar Uddin, FCA, ACMA

2.19: Organization Structure of IBBL:

Chairman
Vice-Chairman
Board of Directors
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Managing Director
Deputy Managing Director
Executive Vice-President
Senior Vice President
Vice President
Assistant Vice President
Senior Principal Officer
Principal Officer
Probationary Officer
Assistant Officer Grade- I
Assistant Officer Grade- II
Assistant Officer Grade- III

2.20:Membership of different organization:


Local:

Bangladesh Institution of Bank Management (BIBM)


The Institution of Bankers Bangladesh (IBB)
Bangladesh Association of Banks (BAB)
Bangladesh Foreign Exchange Dealers' Association (BAFEDA)
Central Shariah Board for Islamic Banks of Bangladesh
International Chamber of Commerce- Bangladesh
Foreign:
International Association of Islamic Banks (IAIB), Jeddah, K.S.A.
Accounting and Auditing Organizations for Islamic Financial Institutions (AAOIFI),
Manama, Bahrain.

General Council of Islamic Banks & Financial Institutions (GCIBFI), Manama, Bahrain
(IBBL is a member of its Executive Council)

Society for Worldwide Inter-bank Financial Telecommunication (SWIFT).

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2.21: Particulars in Attainment of IBBL:
As recognition of good performance IBBL won the following awards:

IBBL has been selected as the only Bank from Bangladesh in top 1000 banks in the world by a
UK based century old financial magazine, 'The Banker' published the list in its July 2012 issue.

The institute of Chartered Accountants of Bangladesh (ICAB) awarded IBBL the first prize of
SARRC Anniversary Award for Corporate Governance.

South Asian Federation of Accountants (SAFA) awarded IBBL as joint Winner in the Corporate
Governance Disclosure Award-2010.

South Asian Federation of Accountants (SAFA) also awarded IBBL with Certificate of Merit in
Banking Sector in the Annual Report for the year 2010.

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

The Institute of Chartered Accountants of Bangladesh (ICAB) awarded IBBL with 3rd position
under the catergory-1, Banking in the best published accounts and reports for the year 2010, the
Certificate of Appreciation for the year 2001 & 2010 and Certificate of Merit for the year 2008.

ICICI Bank, Hong Kong, awarded IBBL as The Quality Recognition Award-2009 for U.S.
Dollar Clearing (2009).

Bankers Forum awarded IBBL as the Best Bank for Corporate Social Responsibility for 2008
and 2009.

The Bank-Bima Patrika, a Fortnightly Magazine, awarded IBBL as the Best Islami Banking
Award 2007.

Exclusive economic weekly The Industry awarded IBBL as the Best Rated Bank Award2010.

The Citi Bank NA awarded IBBL as the Largest Contributor in Foreign Trade Operations in
Europe- Bangladesh corridor in 2009.

The UAE Exchange awarded IBBL for mobilizing around 30% of total foreign remittance of
the country.

We would like to express our heartfelt thanks and gratitude to Almighty Allah, our customers,
patrons, shareholders, print & electronic media, regulatory authorities and employees whose
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support and confidence has made us worthy of these great recognitions by the experts like the
Global Finance, the Institute of Cost and Management Accountants of Bangladesh (ICMAB),
the Institute of Chartered Accountants of Bangladesh (ICAB), the Bank- Bima Patrika, the
weekly Industry, The Citi Bank NA and The UAE Exchange.

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3.1 Introduction:
This chapter discusses the theoretical issues, like investment, performance evaluation of
investment mechanism, different modes of investment in Islamic Banking. Moreover, it also
integrates the observed evidence in the area of investment in Islamic Banking.
3.2 Theoretical Framework:
3.2.1 Investment:
Investment is time, energy, or matter spent in the hope of future benefits actualized within a
specified date or time frame. Investment has different meanings in economics and finance.
In economics, investment is the accumulation of newly produced physical entities, such as
factories, machinery, houses, and goods inventories.
In finance, investment is putting money into an asset with the expectation of capital
appreciation, dividends, and/or interest earnings. Most or all forms of investment involve some
form of risk, such as inflation risk. It is indispensable for project investors to identify and
manage the risks related to the investment.
Investment operation of a Bank is of vital importance as the greatest share of total revenue is
generated from it, maximum risk is centered in it and the very existence of a Bank mostly
depends on prudent management of its Investment Portfolio.

3.2.2 Investment Behavior in Conventional Economy:


The decisions of saving and investment are taken by two distinct groups of individuals, the
savers and the investors. The banking system actually acts as a mediator. The weapon that helps
all these happen is the interest. The bank lends this money to the investors against collateral and
gets an assured source of income. The later rate is always higher than the former, and the
difference between these two rates is the income of the bank.
3.2.3 Investment Behavior in Islamic Economy:
Interest is replaced by profit and loss sharing (PLS) in an Islamic economy. Under the Islamic
system, savers keep their money not for getting a fixed rate of return i.e., interest but for having
the share of profit or loss. On the other hand, the bank does not receive fixed return but share
profit and loss with investors. Here money is not directly exchanged for money, but money is
first exchanged for goods and service and then these goods and services are exchanged for
money. Fixed rate of return is not possible here.
3.2.4: Objectives and principles:
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The special feature of the investment policy of Islamic Banks is to invest based on profit-loss
sharing system in accordance with the tenets and principles of Islamic Sharia. Earning of the
profit is not the only motives and objectives of the Islamic Banks investment policy rather
emphasis is given in attaining social good and in creating employment opportunities.
The objectives and principles of investment operations of the Bank are:

To invest fund strictly in accordance with the principles of islamic shariah.


To diversify its investment portfolio by size of investment portfolio by sectors (Public
&Private), by economic purpose, by securities and by geographical area including industrial,
commercial & agricultural.
To increase the number of potential investors by making participatory and productive
investment.
To invest in the form of goods and commodities rather than give out cash money to the
investment clients.
To encourage social upliftment enterprises.
To ensure avoid all the investment forbidden by the islami shariah.
The bank extends investment under the principles of Bai-murabaha, Bai-Muazzal, Hire
Purchase Under Shirkatul Melk and Musharaka.
To diversify its investment portfolio by the size of investment, by sectors (public& p r i v a t e ) ,
b y industrial, commercial, and agriculture.
To make investment keeping the socio-economic requirement of the country in
view.
3.2.5:Growth Of Investment:
The investment of the Bank demonstrated steady growth over the years. The total investment to
the Bank stood at TK.123950.40 million in 2006.It was TK.102144.51 million in 2005.

3.3: Modes of Investment in Islamic Banking:


The commercial financing instruments provided by Islamic banks are based on the Islamic
Shariah. Modes of investment followed by Islami bank are exercised under three principles:
Bai (Trading) Mechanism

ii

Sharing (Profit & Loss) Mechanism

iii

Ijara (Leasing/Hire) Mechanism


Modes of investment under three principles can be presented as follows:

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Bai
Mechanism

Bai Murabaha
Bai Muajjal
Bai Salam
Bai Istishna
Bai as Sarf

Share
Mechanism

Mudaraba
Musharaka
Purchase of
Shares
Direct Investment

Ijara
Mechanism

Simple Leasing
Hire Purchase
(HP)
Hire Purchase
under Shirkatul
Meelk (HPSM)
Quard Hasana

3.3.1:Bai-Mechanism:
(a) Bai-Murabaha:
Meaning:
The terms 'Bai- Murabaha' have derived from Arabic words Bai and Ribhun. The word Bai
means purchase and sale and the words Ribhun means an agreed upon profit. Bai Murabaha
means sale on agreed upon profit.
Definition:
Bai-Murabaha may be defined as a contract between a Buyer and a seller under which the seller
sells certain specific goods p0ermissible under Islamic Shariah and the Law of the land to the
Buyer at a cost plus agreed profit payable on cash or on any fixed future date in lump- sum or
by installments. The profit marked-up may be fixed on lump sum or in percentage of the cost
price of the goods. There are different types of Murabaha as given bellow:
Types of Murabaha:
In respect of dealing parties Bai-Murabaha may be of two types.
1. Ordinary Bai-Murabaha: Ordinary Bai-Murabaha happens between the two parties, i.e.,
the buyer and the seller, where the seller as an ordinary trader purchases the goods from the
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market without depending on any order and promises to buy the same from him and sells those
to a buyer for cost plus profit, then the sale is called ordinary Bai-Murabaha. In this case the
seller undertakes full risks of his capital invested on the business with a view to earn profit out
of selling the goods purchased for.
2. Bai-Murabaha on order and promise: This transaction involves three parties the buyer,
the seller and Bank. Under this arrangement the bank acts as an intermediary trader between the
buyer and seller. In other words, upon receipt of an order and arrangement to purchase product
from the buyer, the bank will purchase the product from the seller to fulfill the order.

Important Features:
It is permissible for the client to offer an order to purchase particular goods by the Bank dealing
its specification and committing himself to buy the same from their bank on Murabaha. I.e.
Cost-plus agreed upon profit.
It is permissible to make the promise binding upon the client to purchase from the Bank that is
he is to either satisfy the promise or to indemnify the damages caused by breaking the promise
without excuse.
It is permissible to take cash/collateral security to guarantee the implementation of the promise
or to indemnify the damages.
There are certain steps to accomplish a deal of Bai- Murabaha as shown below.
Steps of Bai-Murabaha Practiced by Islami Bank:
First Step:
Submission of proposal: The client's sends a proposal with the specifications of the
commodity for purchasing through the Bank and requests to make him known the date and
method of payment of price, etc.
The Bank sends a quotation valid for a certain period mentioning the cost of the goods plus
profit of the bank.
Second step:

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Signing a promise to purchase: The client promises to buy the commodity from the bank on
Bai-Murabaha basis (for the cost of the commodity plus the agreed upon profit).The Bank
studies the request and determines the securities with terms and conditions for approval.
Third step:
The first sale contract: The bank informs the client of its approval of purchasing the
commodity. The bank may pay the price immediately pr as per the agreement.
The seller expresses its approval to the sale and sends the invoice.
Fourth step:
Signing of a Murabaha Sale Contract: Two parties (the bank and clients) sign the BaiMurabaha sale contract according to the agreement of the promise to purchase.
Fifth Step:
Delivery and Receipt of the commodity:
The Bank authorizes the client or his nominee to receive the commodity the seller sends the
commodity to the place of delivery agreed upon. The client undertakes the receipt of the
commodity in its capacity as legal representative and notifies the bank of the execution of the
proxy.
(b)Bai-Muajjal (Deferred Sale):
Meaning:
The terms "Bai" and "Muajja" have been derived from Arabic words 'Bai' and 'Ajal'. The word
Bai means purchase and sale and the word 'Ajal' means a fixed time or a fixed period. "BaiMuajjal" means sale for which payment is made at a future fixed date or within a fixed period.
In short, it is a sale on Credit.
Definition:
The Bai-Muajjal may be defined as a contract between a Buyer and a Seller under which the
seller sells certain specific goods (permissible under Shariah and law of the country), to the
Buyer at an agreed fixed price payable at a certain fixed future date in lump sum or within a

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fixed period by fixed installments. The seller may also sell the goods purchased by him as per
order and specification of the buyer.
Bai-Muajjal is treated as a contract between the bank and the client under which the bank sells
to the client certain specific goods, purchased as per order and specification of the client at an
agreed price payable with in a fixed future date in lump sum or by fixed installments.
There are some important features of Bai- Muajjal as given bellow:
Important Features:
It is permissible for the Client to offer an order to purchase by the bank particular goods
deciding its specification and committing himself to by the same from the bank on Bai-Muajjal
I.e. deferred payment sale at fixed price.
It is permissible to make the promise binding upon the Client to purchase from the bank, i.e. he
is to either satisfy the promise or to indemnify the damages caused by breaking the promise
without excuses.
It is permissible to take cash/collateral security to guarantee the implementation of the promise
or to indemnify the damages.
It is also permissible to document the debt resulting from Bai-Muajjal by a Guarantor, or a
mortgage or both like any other debt. Mortgage/ Guarantee/ Cash security may be obtained
prior to the signing of the Agreement or at the time of signing the Agreement.
Stock and availability of goods is a basic condition for signing a Bai- Muajjal Agreement.
Therefore, the Bank must purchase the goods as per specification of the client to acquire
ownership of the same before signing the Bai-Muajjal Agreement with the Client.
(c)Bai-Salam :
Meaning:
The terms Bai and Salam have been derived from Arabic words. The words Bai means
sale and purchase and the word Salam means Advance. Bai-Salam means advance sale
and purchase.
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Definition:
It is a sale in which an advance payment is made by the buyer, but the delivery is delayed to an
agreed date. In the Bai-Salam, a financial transaction happens in advance in cash as a price of
commodity whose delivery will be in a future date. It means deferred is the commodity sold
(debt in kind) and price of the commodity described is to be aid immediately in advance.
The Bai-Salam sales serve the interests of both parties:
1. The seller- gets in advance the money he wants in exchange of his obligation to deliver the
commodity later. He benefit from the Salam sale by covering his financial needs whether they
are personal expenses for productive activity.
2. The purchaser-heretic is the financing bank. The bank gets the commodity it is planning to
trade on in the time it decides. Because of the commodity become the liability of the seller who
meets his obligation. The bank will also benefit from the cheap prices for usually Salam sale is
cheaper than a cash sale. This way the bank will be secured against the fluctuations of prices.
The bank can sell on parallel Salam commodity in the same kind as it has previously purchased
on first Salam without making one contract depend on the other. The bank also has the option
of waiting to receive the commodity and then sell it for cash or deferred payment.
Important feature:
Bai-Salam is a mode of finance allowed by Islamic Shariah in which commodity or product can
be sold without having the said commodity or product either in existence or physical possession
of the seller. If the commodity is ready for sale Bai-Salam is not allowed in Shariah. Then the
sale may be done either in Bai-Murabaha or Bai-Muajjal mode of finance.
1. Generally, industrial and agricultural products are purchased/sold in advance under BaiSalam mode of investment to infuse finance so that product is not hankered due to shortage
fund/cash.
2. It is also permissible to obtain Mortgage and /or Personal Guarantee from a third party as
security before the signing of the Agreement or at the time to signing the Agreement

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3. The seller (manufacturer) client may be made agent of the Bank to sell the goods delivered to
the Bank by her provided a separate agency agreement is executed between the bank and the
client (agent).
Practical Steps of the Salam Sale:
1. Cash sale or sale on Credit- The Bank pays the price in the contract meeting so that the
seller makes use of it and covers his financial needs. The seller abides the delivery of the
commodity on the specific due date.
2. Delivery and receipt of the commodity on the specific due Date: The bank there is several
options at the disposal of the bank to choose one of them.
a) The bank receives the commodity on the specific due date, and either for cash or on credit.
b) The bank can authorize the seller to sell the commodity on its behalf as against fees (or
without fees).
c) Direct the seller to deliver the commodity to a third part (the Buyer) according to pervious
promise of purchase that is at an emphatic demand of purchase.
3. The sale Contract: The bank agrees to sell the commodity for cash or a deferred price
higher than the Salam purchase price. The buyer agrees to purchase and to pay the price
according to the agreement.
Rules of Bai-Salam:
1. Commodity Should be Known: It is a condition that the commodity should be known
Ignorance about the commodity leads to dispute which invalidates the contract.
2. Monitoring By Specification: It is a condition that the commodity can be monitored by
specification to the maximum possible degree, only negligible variation is tolerated If the
commodity cannot Be monitored by specification salam is impermissible, because of ignorance
that leads to dispute.
3. Availability of Goods for Delivery: It is a condition that the commodity is possible to
deliver when it is due. That is the probability of its existence at the time of delivery is deemed
to be high, if the contrary is the case, Salam, is impermissible.
4. Salam n the Whole to be possessed partly: It is permissible to draw a Salam sale contract
on one whole thing but to be possessed at different times in specific parts.
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5. Commodity a Liability Debt on the Seller: It is a condition that the commodity is a
liability debt, The seller is obliged to deliver the commodity when it is due, according to the
specification stipulated in the contract without abiding as to whether it is the product of his
factory or the produce of his private firm or from others.
(d)Bai-Istishna :
Meaning and Definition:
Istishna has been derived from Arabic word which means Industry.
Istishna is a contract whereby a part undertakes to produce specific goods and services, and
made according to certain agreed upon specification at a determined price and for a fixed date
of delivery. The production of goods includes any process of manufacturing, construction,
assembling or packaging.
Features of Istishna
1.Istishna is an exceptional mode of investment allowed by Islamic Shariah in which product(s)
can be sold without having the same in existence. If the product(s) are ready for sale.Istishna
is not allowed is Shariah. Then the sale may be done either in Bai- Murabaha or Bai- Majjal
mode of investmentin this mode, deliveries of goods are deferred and payment of price may
also be deferred.
2.It facilitates the manufacturer sometimes to get the price of the goods in advance, which he
may use as capitalfor producing the goods.
3.It gives the buyer opportunity to pay the price in some future dates or by installment.
(e)Bai as Sarf:
Sarf means change. It means Currency Trading and is an Export Financing Trading mode.
When Export Bills in Foreign Currency are submitted by the exporter at Bank, Bank purchase
or negotiate the bill at a particular rate of exchange and give value in Taka to the client exporter
by creating an investment
3.3.2:Share Mechanism:
(a)Mudarabah:
Definition:
It refers to a contact between two parties in which one party supplies capital to the other party
for the carrying on of some trade on the condition that the resulting profits are distributed in a
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mutually agreed proportion while all loss is borne by the provider of the capital. Mudarabah is
also known as Qirad and Muqaradah.
Mudaraba is a contract of those who have capital with those who have expertise where the first
party provides capital and the other party provides the expertise with the purpose of earring
"halal" (Lawful) profit which will be devised between them in ration agreed upon. This mode
serves the business interest of the capital owner and the mudharib (agent).
The following is the steps of the Mudarabah contract.
Steps of Mudarabah:
1. Establishing a Mudharabah Project: The bank- the bank provides the capital as a capital
owner.
The Mudharib- provides the effort and expertise for the investment of capital in exchange of a
share in profit agreed upon.
2. The Results of Mudharabah: The two parties calculate the earrings and divide the profits at
the end of Mudharabah; this can be done periodically in accordance with the agreement along
with observance to legal rules.
3.Payment of Mudharabah Capital: The banks recovers the Mudharabah capital it
contributed before dividing the profits between the two parties because profit is protection to
capital in case of agreement to distribute profits periodically before the final settlement it must
be on account until the security of capital is assured.
4. Distribution of wealth resulting from Mudharabah: In case of loss, the capital owner (the
bank) bears the loss. In the event of profits, they are divided between the two parties in
accordance with the agreement between them with observance to the principle "profit is
protection to capital".
There are some legal rules for Mudharabah Mode of Finance, which are as follows.
Rules of Mudharabah:
1. Capital Must be Specific: It is a condition in Mudharabah that capital must be specific or its
return to owner, so its amount must be known at the contract, and because the uncertainty about

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the amount of capital necessarily leads to uncertainty about the amount of profit, which
represents an increment to capital.
2. Capital must be in Currency: it is a condition that capital must be a currency in circulation.
However, It can be merchandise only in condition that it is evaluated at the contract and the
agreed upon value becomes the capital of Mudharabah.
3. Capital Not a Liability debt on Mudarib: It is a condition that in capital must not be a
liability debt on the Mudharib, because the Mudharib is a trustee and in respect to the debt, it is
a guarantor who can only be absolved after payment.
4. Mixing of Private Capital Permissible: It is permissible for a mudharib to mix its private
capital with the capital of the Mudharabah, thus it becomes a partner, as well, and its disposal
of capital on the basis of Mudharabah is permissible.
5. Delivery of Capital to Mudarib: It is a condition that the capital of Mudharabah must be
delivered to the mudharib because not delivering it imposes constrictions on the withhold it
imposes constrictions on the mudharib and restricts its power disposal. Some of the jurists
permit the capital owner to withhold capital and release it gradually according to the needs of
the mudharib since Mudharabah adjudges unrestricted disposal but not deliver.

(b)Musharakah (Partnership):
Meaning and definition:
The word Musharakah is derived from the Arabic word Sharikah meaning partnership. Islamic
jurists point out that the legality and legality and permissibility of Musharakah is based on the
injunctions of the Holy Qura'n, Sunnah, and Ijma (consensus) of the scholars. It may be noted
that Islamic Banks are inclined to use various forms of Shariakt- al -Inan because of its built on
flexibility. At an Islamic bank, a typical Musharakah transaction may be conducted on the
following manner.
One two or more entrepreneurs approach an Islamic Bank for the finance required for a project.
The bank along with other partners provides complete finance. All partners, including the bank
have the right to participate in the project. They can also waive this right. The profits are to be
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distributed according to an agreed ratio, which need not be the same as the different partners
have provided the finance for the project Musharakah may be of two types:
1.Permanent and
2. Diminishing Musharaka which have been discussed below.
a. Permanent Musharakah:
In this case the bank participates in the equity of a company and receives an annual share of the
profits on a pre-rate basis. The period of termination of the contract is not specified. This
financing technique is also referred to as continued Musharakah.
b. Diminishing Musharakah:
Digressive or Diminishing Muaharakah is a special form of Musharakah which ultimately
culminates in the ownership of the asset or the project by the client. It operates in the following
manner.
The bank participates as a financial partner, in full or in part, in a project with a given income
forecast. An agreement is signed by the partner and the bank through which the bank receives a
share of the profit as a partner. However, the agreement also provides payment of a portion of
the net income of the net income of the project as repayment of the principal financed by the
bank. The partner is entitled to keep the rest.
Definition of permanent Musharakah:
The contributions of the partners under this mode may be equal or unequal ratios of capital to
establish a new income-generating project or to participate in an established one, whereby each
participant owns a share in the capital structure permanently and deserves his share of the profit
income. Such a partnership originally is intended to continue up to the dissolution of the
company. But one can sell his share in the capital to withdraw from the project.
The Islamic Banks can use the mode of Permanent Musharakah in many income-generating
projects. They can finance their customers, for an intended projects, with pare of the capital
required for the project in exchange of a share of the output as they may agree upon. They can
also mostly leave the responsibility of management of the customer- partner and retain the right
of super vision and follow up.

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It follows from the above discussion that there are three steps of permanent Musharakah
which are given below.
One- partnership in Capital
The bank tenders part of the capital required in its capacity as a partner and authorizes the
customer partner to manage the project.
The partner tenders part of the capital required for the project and be a trustee on what he holds
from the bank funds.
Two-Results of the projects
The work in the project is for the growth of capital. The project may achieve positive or
negative results.
Three-The Distribution of wealth accrued from the project.
In case of loss, each partner bears part of the loss proportionate to its share in capital. In case of
earning profits, they are divided between the two parties (the bank and the partner) in
accordance with the agreement.
Rules for Permanent Musharakah:
1. Capital should be Specific: It is a condition that the capital of the company is specific,
existent and under disposal. It is invalid to establish a company on non-existent fund of debt,
for the purpose of profit,
2. Share of Equity: It is not a condition that partners have equal shares in capital, though
variation in shares is permissible. It is subject to agreement.
3. Nature of Capital: It is a condition that the capital of the company is money and valuables.
Some of the jurists permit participating with merchandise on condition it is evaluated in the
contract and the value agreed upon becomes the capital of the company.
4. Active Participation of Partners: It is impermissible to impose conditions forbidding one
of the partners from work, because the company is build on and each partner implicitly permits
and gives power of attorney to the other partner to dispose of and work wit capital but it is
permissible for one partner to singly work in the company by mandate of other partners.
5. No Security for Profit: A partner is a trustee on the funds in his hand from the company and
he guarantees only in case of trespass or negligence and it is permissible to take a mortgage or a
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guarantee against trespass and negligence but it is impermissible to take security or profit or
capital.
Application of permanent Musharakah:
Permanent Musharakah is helpful for large amount of investment in modern economic
activities the Islamic banks can use Musharakah to a new or established firm by using
permanent Musharakah as a mode of investment. The Islamic banks can make sufficient fund
available to the customer for the long term. The Islamic banks may become active partners in
determining the methods of production cost control, marketing etc. and to achieve the
objectives of the establishment. They can also supervise and follow up the overall activities of
the firm. The Islamic banks can share profit or loss with the (partners) clients in all situations of
the firm.
Definition of Diminishing Musharakah:
Diminishing Musharaka is an intention from the very beginning not to stay in and continue the
partnership up to the liquidation of the company. The Islamic bank can give the other partner
the right to purchase portion of the bank on the ownership [the form for full payment at a time
or by installment basis as per agreement with the partners (the client).
The bank gradually can relinquish share to the partner, in exchange the partner pays the price to
the bank periodically during a reasonable period to be agreed upon. After the discharge, the
bank withdraws it claims from the firm and it becomes the property of the partner. Decreasing
partnership is a mode innovated by the Islamic banks. It differs from the partnership. Those are
mentioned below.
Steps of diminishing partnership:
1. Participation in capital: The bank-tenders part of the capital required to the project In its
capacity as a participant and agrees with the customer partner on a specific method of selling its
share in capital gradually.
The partner-tenders part of the capital required to the project and a trustee in what is in its
hands of the bank funds.
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2. Results of the projects: The purpose of the work in the project is the growth of capital. The
results of the project may be positive or negative.
3. The distribution of the wealth accrued from the projects: In the event of loss each partner
bears its share in the loss in a ratio proportionate to its share in capital. In case of earning
profits, are detonated between the two partners (the bank and the customer) in accordance with
the agreement. The shares the sale must be concluded as a separate deal with no connection to
the contract of the company.
4. The Bank sells its Share In Capital: The Bank- expresses its readiness, its readiness, in
accordance with the agreement, to sell a specific percentage of its share in capital.
The partner- pays the price of that percentage of capital to the bank and the ownership is
transferred to the partner.
This process continues up to the end of the partnership of the bank in the project and that's by
gradually transferring the ownership of the project customer/partner. In this way the bank has
its principal returned plus the profit earned during the partnership advice versa.
In the first Conference of the Islamic Banks in Dubai, the conferees studied the topic of
partnership ending with ownership (decreasing partnership) and they decided that this mode
can be applied in one of the following (ways) forms.
The First Form: The Bank agrees with the customer on the share of capital and the conditions
of partnership. The Conference has decided that the bank should sell its shares to the customer
after the completion of the partnership and in an independent contract where the customer has
the same provision.
The Second Form The band agrees with the customer in participating in the total or partial
capital of a firm of prospective earnings on the basis of the agreement with the right to relating
the remainder of the income for the purpose of paying the principal of what the bank has
contributed.
The Third Form The shares of each partner (the bank and the partner) in the company are
determined as stocks co comprising the total value of the asset (real estate) Each partner, (the
bank and the customer) gets its share of the earnings accrued from the real property, If the
partner so wishes it can each year purchase a cretin number of the shares owned by the Bank,
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The shares possessed by the bank shall be decreasing until the partner becomes the sole owner
of the real property.
Rules for diminishing Musharakah:
In addition to all the legal rules that apply to the permanent partnership which also apply to the
decreasing partnership, the following matters must the observed.
1. Participation and Sharing profit and Loss: It is a condition in the decreasing partnership
that it shall not be a mere loan financing operation, but there must be real determination to
participate and all the parties shall share profit or loss during the period of the partnership.
2. Banks Ownership and Right to Management: It is a condition that the bank must
completely own it, share in the partnership and must have its complete right in management
and disposal. In case the bank authorizes its partner to perform the work, the bank shall have
the right of supervision and follow up.
3. Redeeming Bank's Share of Capital: It is impermissible to including the contract of
decreasing partnership a condition that adjudges the partner to return to the bank the total of its
shares in capital in assertions in addition to profits accruing from that share, because of
resemblance to RIBA (usury).
4. Banks Promise to Sell It Share to the Partner: It is permissible for the bank to offer a
promise to sell its shares in the company to the partner if the partner pays the value of the
shares. The sale must be concluded as a separate deal with no connection to the contract of the
company.
(c)Purchase of Shares:
Islamic Banks can purchase shares from the share markets. If properly managed, this can be a
good source of income. But Islamic Banks are allowed to enter into Halal business only. Thats
why they have to be careful in selecting company or companies and see whether the selected
companys activities are permitted by Shariah.
(d)Direct Investment:
Without taking any assistance from a third party, the Islamic Banks can itself run a business, or
establish industrial enterprise.
3.3.3:Ijara Mechanism:
(a)Simple Leasing:
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Under this mode of financing, one party purchases and owns 100% of a particular asset which
is rentable. Another party hires the same from the first party for a particular period and pays
rent as per agreement against using of asset. At the end of the agreement, the asset may be
returned from the second party.
(b)Hire Purchase (HP):
Under this mode of financing, one party purchases and owns 100% of a particular asset which
is rentable. Another party hires the same from the first party for a particular period and pays
rent as per agreement against using of asset as well as also pays a part of principal share in
lump sum/installment basis. Up to the payment of principal share, the second party pays the
rent and after full payment of principal share, first party hands over the asset to the second
party.
(c)Hire Purchase under Shirkatul Melk:
Meaning and Definition:
Hire purchase Under Shirkatul Melk is a special type of contract which has been developed
through practice. Actually, it is a synthesis of three contracts:
Shirkat
Ijarah and
Sale
There may be defined as follows:
Shirkatul Melk:
Shirkatul means partnership Shirkatul Melk means share in ownership. When two or more
persons supply equity, purchase an asset, own the same jointly, and share the benefit as per
agreement and bear the loss in proportion to their respective equity, the contract is called
Shirkatul Melk contract.
Ijarah:
The term Ijarah has been derived from the Arabic words Air and Uirat which means
consideration, return, wages or rent. This is really the exchange value or consideration, return,
wages, rent of service of an asset. Ijarah has been defined as a contract between two parties, the
Hiree and Hirer where the Hirer enjoys or reaps a specific service or benefit against a specified
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consideration or rent from the asset owned by the Hiree, it is a hire agreement under which a
certain assert is hired out by the Hiree to a Hirer against fixed rent or rentals for a specified
period.

Element of Ijarah:
a. According to the majority of Fuqaha, there are three general and six detailed elements of
Ijarah.
The wording: this includes offer and acceptance.
Contracting parties: this includes a Hiree, the owner of the property, and a Hirer, the party that
benefits from the use of the property.
Subject matter of the contract: this includes the rent and the benefit.
b. The Hiree: the individual or organization hires/rents out the property of service is called the
Hiree.
Sale:
This is a sale contract between a buyer and a seller under which the ownership of certain goods
or asset is transferred by seller to the buyer against agreed upon price paid / to be paid by the
buyer.

Stages of Hire Purchase under Shirkatul Melk:


Thus Hire Purchase under Shirkatul Melk agreement has got three stages:
Purchase under joint ownership
Hire and
Sale and transfer of ownership to the other partner Hirer.
(d) Quard Hasana:
Quard Hasana is a loan without any charge. No profit is added to this. The loan giver may
charge a small fee to cover the expenses incurred in handling the loan. This mode may also be
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Performance Evaluation Of Investment Mechanism of Islami Bank Bangladesh Limited


called Loans on service charge. Quard is Halal by Islam for not to pay any extra or interest in
return.
Characteristics of Quard1.
2.
3.
4.

There should have fungible goods.


Goods must be returned equally.
There is no extra payment.
To specific period for returning goods.
Quard-e-Hasana: Quard-E-Hasana is also one kind of Quard which is given with the
expectation of return or not.

a
b
c
d
e

3.4: Objects of Islamic Investment:


Islami Banks dont lend money rather they make investment. There is no borrower in Islami
Banks but clients who avail investment from Islamic Banks are the user of fund and called
investment clients. Therefore the concept of finance is different here. Objects of Islamic
Investment are as follows:
To encourage the entrepreneur to follow Islamic Shariah in respect of business. The idea of
business ethics are being cultivated among them. They are told not to involve in hoarding,
black marketing, and excess charging of profit and not to deal in pork, liquor, cigarettes, etc.
To share risk factor emerging in the business and thereby share in profit and loss with the
entrepreneurs.
To invest in projects which are highly employment generated, related to social welfare and
fulfill national priority.
To achieve balanced growth in all respect and equitable development through diversification
by size, sector and geography.
To establish justice and equal distribution of wealth so that those are rotated amongst all sectors
of population and not concentrated within some big baskets.

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Performance Evaluation Of Investment Mechanism of Islami Bank Bangladesh Limited

Table: 4.1: Trend of General Investments of IBBL in last five year (2009-2013):
Year

2009

2010

2011

2012

2013

Amount in Million

214616

263225

305841

372921

406805

Growth In
Percentage (%)

19.19%

22.65%

16.18%

21.93%

9.09%
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Performance Evaluation Of Investment Mechanism of Islami Bank Bangladesh Limited


Source: Annual Report of IBBL (2008-2013)
Figure: 4.1: Trend of General Investments of IBBL in last five year (2009-2013):
450000

406805
372921

400000

Amount in million Tk.

350000

305841

300000
250000

263225
214616

200000
150000
100000
50000
0

2009

2010

2011

2012

2013

Source: Annual Report (2008-2013)


Analysis: From the above graph, it is clear that the overall trend of investment is increasing
during the period under study that is positive sign for the investment.

4.2:Mode wise Investment of IBBL:


Among the different modes discussed above IBBL practices the followings:
Bai-Murabaha
HPSM
Bai-Muajjal
Bill Purchased and Negotiation
Quard
Bai-Salam
Musharaka

Figure: 4.1: Mode wise Investment of IBBL:

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Performance Evaluation Of Investment Mechanism of Islami Bank Bangladesh Limited

Mode-wise Investment in 2013


3% 1% 3%
Bai-Murabaha
6%

7%
HPSM

Bai-Muajjal

Bill Purchased & Negotiation

Quard

56%
23%
Bai-Salam

Musharaka

Source: Annual Report of IBBL (2013)


Analysis: From the pie chart we can see that mode-wise investment by IBBL was very high in
Bai- Murabaha and then in HPSM and very low in Bai-Salam, Musharaka and Quard.
Table: Mode-wise Investment (In Million Taka)
Sl.
No.

Mode

2012

2013

Amount

% to Total
Amount
% to Total
Investment
Investment
1
Bai-Murabaha
221632
59.43
225876
55.52
2
HPSM
96,056
25.76
95,481
23.47
3
Bai-Muajjal
18,295
4.91
24,053
5.91
4
Bill Purchased & Negotiation
9,531
2.56
29,686
7.30
5
Quard
9,156
2.46
13,670
3.36
6
Bai-Salam
4,532
1.22
4,200
1.03
7
Musharaka
13,719
3.68
13,838
3.40
Total
372921
100
406,805
100
Source: Annual Report of IBBL (2012-2013)
From the above table we can say that the total Investment of the Bank increased to Tk. 406,805
million as on 31.12.2013 from Tk. 372,921 million as on 31.12.2012 showing an increase of
Tk. 33,884 million, i.e. 9% growth. From the table we can see that mode-wise investment by
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Performance Evaluation Of Investment Mechanism of Islami Bank Bangladesh Limited


IBBL was very high in Bai- Murabaha and then in HPSM and very low in Bai-Salam,
Musharaka and Quard.
4.3:Sector-wise Investment:
Table 4.3:Sector-wise Investment (In Million Taka)
Sl.
No.

Sector

2012
Amount

1
2
3
4

5
6
7

Industrial (Excluding SME)


Commercial
Real Estate
Agriculture (including
investment in Fertilizer and
Agriculture
Implements)
Transport
SME
Others
Total

104975
32,324
21,754
19,658

6,449
176,107
11,654
372921

2013
% to Total
Investment
28.15
8.67
5.83
5.27

Amount
121531
39,135
27,057
20,306

% to Total
Investment
29.87
9.62
6.65
4.99

1.73
6,687
1.64
47.22
173,660
41.25
3.13
18,429
5.97
100
406,805
100
Source: Annual Report of IBBL (2012-2013)

Figure: 4.3: Sector wise Investment of IBBL:

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Performance Evaluation Of Investment Mechanism of Islami Bank Bangladesh Limited

2013 Amount

15%
5%
3%
2%

50%

1%
21%
2%

Source: Annual Report of IBBL (2013)


Analysis: From the pie chart we can see that sector-wise investment by IBBL was very high in
SME then in Industrial sector and very low in Transport and agriculture.
4.4: Investing in SMEs:
IBBL is the highest investment provider in the SME sector at present and has been
contributing significantly in this sector. At present IBBLs share in SME is 15% of the total
national exposure which is 22% of the PCBs, highest among all banks and 41% of own total
investment. In terms of disbursement of Investment to SME sector, IBBL holds the first
position in terms of disbursed amount during the year 2013 and outstanding amount at end
2013 which are much higher to its nearest contributors.
Besides this, IBBL involves in entrepreneurship development, cluster development, women
empowerment through entrepreneurship development training, counseling etc. IBBL is also
sponsoring and participating in various SME related road-shows, fairs, seminars, symposiums for
the development of the sector.
Bangladesh Bank has fixed SME disbursement target of Tk.200,000 million to IBBL for
2013. By the grace of Almighty Allah, we have disbursed Tk.226,910 million up to
December, 2013 which is 113% of target.
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Performance Evaluation Of Investment Mechanism of Islami Bank Bangladesh Limited


Outstanding under SME Investment of IBBL is Tk.173,660 million as on 31.12.2013 against
52,000 clients which is 41% of total Banks investment of Tk. 406,805 million.
Figure 4.4:Year Wise SME Exposure:

Year Wise SME Exposure


Amount In Million Tk.

173660
149214

Year

Million
108670 Taka
78456

49337

2009

2010

2011

2012

2013

Source: Annual Report of IBBL (2013)


Analysis: In this chart we can see that year wise SME Exposure was very high position in last
year than other year. It also shows that SME is gradually increased year to year.

Figure 4.4SME Exposure of IBBL to National SME Exposure in 2013:

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Performance Evaluation Of Investment Mechanism of Islami Bank Bangladesh Limited

SME ExposureOf IBBL Vs. PCBs


IBBL; 22%

Other PCBs ; 78%

Analysis: In this pie chart we can see that SME Exposure Of IBBL is 22% that is lowest than
Other PCBs.
Figure 4.4SME Exposure of IBBL to National SME Exposure in 2013:

Percentage
IBBL; 15%

National Exposure; 85%

Analysis: This pie shows that National Exposer is higher than SME Exposure of IBBL.IBBL of
SME Exposure is 15%, whereas National Exposer is 85%.
4.5: Net Investment Income:
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Performance Evaluation Of Investment Mechanism of Islami Bank Bangladesh Limited

Table: 4.5: Net Investment Income:


Year
2009
2010
2011
2012
2013
Amount in
8293.5 10294. 13618. 17801. 17170.
Million
4
4
3
8
3
Growth In
12.35% 24.13% 32.29% 30.72% -3.55%
Percentage
Source: Annual Report of IBBL (2008-2013)

Figure: 4.5: Net Investment Income:


4

20000

Amount In Million tk.

18000

16000
14000

12000

10000
8000

17801.8

17170.28

2012

2013

13618.31
8293.54

10294.37

6000
4000
2000
0

2009
1

2010

2011

3
Year

Amount in Million

Source: Annual Report of IBBL (2008-2013)


Analysis: In this chart we can see that net investment is higher condition in 2012.
From the above chart, we can say that Net Investment Income decreased in 2013 in relation to
2012. The reason may be the overall economic scenario and political instability prevailing in
the country throughout the year 2013.
4.6:The Investment Performance of IBBL in Different Modes (2009-2013):
Bai-Murabaha
Table: 4.6: Bai-Murabaha
Year
2009
2010

2011

2012

2013

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Performance Evaluation Of Investment Mechanism of Islami Bank Bangladesh Limited

Amount in
Million

117180

146135

177136

221632

225876

Source: Annual Report of IBBL (2013)

Figure: 4.6: Bai-Murabaha:


250000
221632

225876

200000

Amount In Million tk.

177136
146135

150000
117180

100000

50000

2009

2010

2011

Year

2012

2013

Source: Annual Report of IBBL (2008-2013)


Analysis: Bai-Murabaha is the most popular investment in IBBL. Above the graph we can see
that this is increased year to year that is carrying positive sign.
Bai-Muajjal
Table: 4.6: Bai-Muajjal
Year
2009
2010
2011
2012
2013
Amount in
Million

7318

12393

15912

18295

24053

Source: Annual Report of IBBL (2013)

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Performance Evaluation Of Investment Mechanism of Islami Bank Bangladesh Limited

Amount In Million Tk.

Bai-Muajjal
5

Amount in
3 Million

Year

2
1

24053
18295

15912

12393

7318
2009

2010

2011

2012

2013

Analysis: In this chart we can see that Bai muajjal is gradually increased every year. Increased
Bai muajjal is a positive sign for any organization.
.
Hire Purchase Under Shirkatul Meelk:
Table 4.6:HPSM:
Year
2009
Amount in
Million

73871

2010

2011

2012

2013

80093

89070

96056

95481

Source: Annual Report of IBBL (2008-2013)


Table 4.6:Hire Purchase Under Shirkatul Meelk:

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Performance Evaluation Of Investment Mechanism of Islami Bank Bangladesh Limited

Amount In Million Tk.

HPSM
95481

80093

73871

2009

96056

89070
Year

Amount in Million

2010

2011

2012

2013

Source: Annual Report of IBBL (2008-2013)


Analysis: Above the chart it indicate that total investment of HPSM is increased year by year.
Bill Purchased and Negotiation:

Year
Amount in
Million

2009
11289

Bill Purchased and Negotiation


2010
2011
2012
5141

2744

9531

2013
29686

Source: Annual Report of IBBL (2008-2013)

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Performance Evaluation Of Investment Mechanism of Islami Bank Bangladesh Limited


35000
5

Amount In Million in Tk.

30000
25000
20000

29686

15000

10000
11289

5000
0

2009

2
5141
2010
Year

3
2744
2011

9531
2012

2013

Amount in Million

Source: Annual Report of IBBL (2008-2013)


Analysis: Bill purchase and negotiation of IBBL has almost same level for first four years and
increased in last year. In this chart we can see that total investment of Bill Purchased and
Negotiation is highest position in 2013.
Quard
Year
2009
2010
2011
2012
2013
Amount in
Million

2833

2095

5614

9156

13670

Source: Annual Report of IBBL (2008-2013)

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Performance Evaluation Of Investment Mechanism of Islami Bank Bangladesh Limited

Amount In Million Tk.

Quard
5

Amount in Million

Year
13670

3
1
2833

2
2095

2009

2010

9156

5614

2011

2012

2013

Source: Annual Report of IBBL (2008-2013)


Analysis: Using this chart we can see that, the investment of quard is gradually increased year
to year.
Bai-Salam
Year
2009
Amoun
t in
Million

2082

2010

2011

2012

2013

3624

3528

4532

4200

Source: Annual Report of IBBL (2008-2013)

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Performance Evaluation Of Investment Mechanism of Islami Bank Bangladesh Limited

Amount In Million in Tk.

Bai-Salam
4
2

3
Amount in Million
3528

3624

4532

Year

4200

2082

2009

2011

2010

2012

2013

Analysis: This chart shows that, the position of Bai-Salam is almost same level in every year.
Musharaka
Year
Amount in
Million

2009

2010

2011

2012

2013

43

12244

9571

13719

13838

Source: Annual Report of IBBL (2008-2013)

Musharaka
5

Amount In Million In Tk.

1
43
2009

2
3
Amount in Million
12244

Year
13719

13838

2012

2013

9571

2010

2011

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Performance Evaluation Of Investment Mechanism of Islami Bank Bangladesh Limited


Analysis: This chart shows that total investment of musharaka is highest position in last 2
years, whereas 2009 & 2011 shows lowest position.
4.7: Some Special Investment Schemes:
The Bank, since its inception, has been working for the uplift and emancipation of the
underprivileged, downtrodden and neglected sections of the populace and has taken up various
schemes for their well being. The objectives of these schemes are to raise the standard of living
of low-income group, development of human resources and creation of avenues for selfemployment.
SLNo.
01
02
03
04
05
06
07
08
09
10
11
12

Schemes Name
Household Durable schemes-HDS
Investment schemes for Doctors
Small Business Investment schemes(SBIS)
Agricultural Implements Investment schemes(AIIS)
Housing Investment schemes-HIS
Real Estate Investment Program-REIP
Rural Development schemes-RDS
Transport Investment schemes-TIS
Car Investment scheme-CIS
Mirpur Weavers Investment schemes-MSWIS
Micro Industries Investment scheme-MIIS
Palli Griha Nirman Beniyog Prakalpa-PGNBP

Implemented Date
27.01.1993
11.07.1990
06.03.1991
02.12.1992
30.11.1994
24.08.1991
31.08.1995
21.05.1995
14.11.1995
09.10.1999
18.07.2000
30.01.2011

2.7.1 Household Durables Scheme


The objective of the scheme is to increase standard of filing and quality of life of the fixed
income group by extending them investment facilities to purchase household articles such as
furniture like Almirah, sofa set, wardrobe; electric and electronic equipment like television,
refrigerator, gas cooker; air conditioner, PC, washing machine; electric generator-IPS, UPS;
motor cycle; corrugated iron sheet, cement, rod, wood etc, for construction of dwelling house;
gold ornaments, tube-well, mobile telephone set etc; medical/ engineering
instruments/equipment, computer, books etc for students.
2.7.2 Housing Investment Scheme
The Bank has introduced this scheme recently to ease the serious housing problem in the urban
areas and to make arrangement for comfortable accommodation of the fixed income group.
2.7.3 Officials of the Defense Forces

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Permanent Officials of Government, Semi-Government and AutonomousOrganizations;
Teachers of the established Universities, University Colleges & Medical College: Graduate
Engineers, Doctors and Established professionals; Bangladeshi Officials of reputed
Multinational Companies, International Financial Organizations, Donor Agencies, Foreign
Embassies etc. Officials of local established & reputed public Limited Companies; Wage
Earner professionals like Doctors, Engineers, Accountants, Teachers and other profession doing
good job abroad with hand-some pay-package shall be eligible to apply for availing investment
facilities under the Scheme.
2.7.4. Real Estate Investment Program
Professionals, Service-holders, Businessmen, Real Estate Developer and other categories of
people who are not entitled for availing investment facilities under Housing investment
Scheme, shall be eligible under this program. Investment is to be extension/ completion of the
house already constructed, commercial building, shopping complex, flat/ apartment etc.
2.7.5. Transport Investment Scheme
To ease the existing transportation problem and ensure speedy economic growth and
development of the country particularly the expansion of trade, commerce and industry, the
Bank has taken up this Scheme. Under this Scheme investment is being allowed to the existing
successful businessmen and potential entrepreneurs in this sector for all types of road and water
transport like bus, mini-bus, truck, launch, cargo-vessel, transport for rent-a-car service; and
baby taxi, tempo, pick-up van for self-employment; and ambulance for clinic & hospital. The
Bank is also extending investment facilities to multinational companies, established business
houses and well to do officials and professionals for acquisition of private cars, microbus and
jeeps.
2.7.6. Car Investment Scheme
Car is considered as an essential mode of transport in the modern society, particularly by a
section of the officials, business houses and business executives and established professionals
for movement in discharging their duties and responsibilities punctually and efficiently. To
meet this need, Islami Bank has introduced the Car investment Scheme for the mid and high
ranking officialsof government and semi-government organizations, corporations, executives
and directors of big business houses and companies and also for persons of different
professional groups on easy payment terms and conditions.
2.7.7. Investment Scheme for Doctors
The Bank has taken up this Scheme to help unemployed qualified doctors to go for selfemployment and to provide latest medical equipments to specialist doctors to extend modern
Medicare facilities throughout the country.
2.7.8. Small Business Investment Scheme
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Performance Evaluation Of Investment Mechanism of Islami Bank Bangladesh Limited


This Scheme has been taken up for self-employment of educated unemployed youths of rural
and urban areas and to provide investment to small businessmen and entrepreneurs. Investment
is extended for about 200 economic activities in sectors as live-stock, fishery, agrotrading/shop-keeping, transportation, agricultural implements, forestry and service viz. laundry,
signboard painting etc.
2.7.9. Agriculture Implements Investment Scheme
In keeping with view of the people-oriented and welfare objectives of the Bank, this scheme
has been introduced to provide power tillers, power pumps, shallow tube wells, thresher
machines etc. on easy terms to unemployed rural youths for self-employment and to the
farmers to help augment production in agricultural sector.
2.7.10. Micro-Industries Investment Scheme
To create wider base for industries as well as to encourage establishment of micro-industries in
different areas of the country by the potential entrepreneurs and for diversification of the
Banks investment port-folio, the Bank introduced Micro industries Investment Scheme.
Different sectors including food and agriculture based industries, plastic & rubber industries,
forestry and forestry and furniture industries, engineering industries, leather industries,
chemical industries, textile industries, recycling industries, service industries, electrical
accessories industries, computer technology industries, paper products industries, handicrafts
industries, fishery & live stock farming, hollow bricks, roof tiles and any other viable microindustries havebeen identified for financing under the Scheme.
2.7.11 Rural Development Scheme
Bangladesh is predominantly an agricultural country with vast majority living in rural areas.
Near than 60% of the people live below the poverty line. Seasonal unemployment and under
idle and without job in most of the time of the year. As a result people in large number are
migrating to urban areas, particularly in metro polish in search of employment thereby creating
social and environment hazards. Islami Bank has, therefore, taken up a Scheme to reactive the
rural economy and develops model villages through integrated rural development approach.
The objective of the Scheme is to create income generating and productive self-employment
opportunities through extension of investment for the development of rural areas and thereby
contribute in alleviating rural poverty. Investment will be allowed for the purpose of, amongst
others, production of 21 types of main crops viz. food, cereals and cash crops, off-farm
activities like dairy, beef fattening, goat rearing, poultry, shop keeping, peddling etc, rural
transport like rickshaw, rickshaw-van, cart etc; irrigation equipment, hand tube-well, housing
materials. in all covering about 343 types of economic activities, Islami Bank Foundation, a
subsidiary of the Bank, engaged in social welfare activities shall, side by side, take care of the
requirement of sanitation, Medicare and education of the villages through integrated area
development approach under Islamic model

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4.8: Some Islamic New Investment Products:
1) Ijara Muntahin Bittamleek (Financial Lease)
Ijara is a form of leasing where a property is leased by the lessor to the lessee in a way that at
the end of an agreed lease period, the lessees become the owner of the property by purchasing it
from the lessor during or at the end of the lease period at an agreed sale price.
2) Mudaraba on Lands
Literally, Mudaraba means selling on profit. The Shariah application of this term is as follows:
A purchaser approaches a seller, provides the details of goods he wants to purchase from a
seller & gives promise to the seller that he will purchase the goods from him at a price, which
percentage of profit. Applying this mechanism, the bank purchases a plot of land as per clients
specifications & their promise to purchase it from the bank on deferred basis.
3) Istissnaa (Manufacturing sale)
It is contract by a spot purchase of a non available commodity or equipment is affected. The
manufacturer is committed to deliver the commodity or the equipment as per the agreed upon
specifications, price & date. Spot payment is not required as the case with Salam sale.
The agreed commodity upon manufacturing is delivered to the bank on a forward date along
with payment of the price subject to the terms of a contract. After delivery, the bank sells the
commodity in the market or to clients that have applied for the purchase previously.
4) Istizrar
Istizrar is type of business permissible under Islamic Shariah. Under this mode, the buyer
purchases the goods in different quantities time to time from a specific seller as per his
requirement. Late of the total cost of the goods, taken by the buyer in different times is
calculated at the market price.
Shariah Council of IBBL in its 15th meeting (dated 08.07.2009) approved this mode of
investment to introduce in IBBL.
5) Juwala
Jueala is a specific mechanism where the bank will make an agreement with the intending
client, to accomplish a specific work. Bank will realize commission or service charge against
the services rendered.

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Bank can also use this mechanism by providing financial services to the students for
completion of higher study & those who intends to perform Holy Hajj & Umrah & the clients
who intends to go abroad for job etc.
It is mentionable here that, The Shariah council of IBBL include it as an agenda for studying
examining the feasibilities & Shariah permissibility of the product.
6) Tawarruk
Tawarruk is special types of investment. It means buying a commodity with deferred payment
& selling it to a person other than the seller for a lower price with immediate payment. The
cash requirement of the clients can be met by practicing this mode.
7) Islamic Pawning
Under this mode, Bank provides a certain amount in clients under Quard al Hasan mode. They
pawn the gold or other valuable assets against the Quard. The Bank takes safe keeping charge
from the client for safe keeping that asst on basis of Al Wadiah Ad Damanah.This mode may be
exercised to meet the cash requirement of entrepreneur of Small & Medium size enterprise.

4.9: Investment schemes of IBBL:


There are 13th special number of schemes are now under operation of IBBL in order to extend
co-operation to the poor, the helpless and the low income group for their economic uplift as
well as for poverty alleviation, income and employment generation with a view to accelerate
sustainable socio economic growth of the society.
At present thousands of clients is enjoying investment facility through these special schemes
which stands 8.03% of Banks total investment of the bank. Overall recovery of these
investment is about 97% which is 108% including advance recovery.
Among all division/ department of IBBL RCID has the privilege to induct highest number of
new investment clients exclusively through these special schemes resembling the mission and
vision of IBBL.

4.10:Mode of Recovery :
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The Banks investments and profit thereon shall be recovered in 24 monthly instalments
within a period of 2 (two) years.
The monthly installment shall be payable by the first week of every month. The first
instalment shall be due for payment in the first week of the subsequent month of the
disbursement/delivery of goods/articles.
Dues payable to the Bank shall be recovered in the following manner depending on the nature
of the organization and the status of the client :
.On request of the employee, the employer shall deduct the monthly installment from his salary
and remit the amount to the Bank. In this connection, the client shall have to furnish a letter of
consent from the employer.
. Before the delivery of goods, the client shall deposit to the Bank 24 post-dated cheques giving
specific dates against each monthly installment. The cheques shall be presented to the
concerned bank on due dates for encashment and adjustment of proceeds towards repayment of
installment.

4.11:Full fledged Islami Banks Investment:


Total amount of investments in Islamic Banking industry reached Tk. 113795.99 crores during
April-June 2014. During the quarter, investments increased by 5.76% and 18.77% respectively
compared to the previous quarter and the corresponding quarter of the preceding year.
Among total investments, 95.31% were made by 8 full-fledged Islamic banks, 3.31% by the
scheduled banks Islamic banking branches and the rest 1.38% by the scheduled banks Islamic
banking windows.As in the case of deposits, Islami Bank Bangladesh Ltd attained the highest
share in investments which was 39.04% during April-June 2014. The share of investments
made by other Islamic banks included EXIM Bank Ltd.(13.99%), Al Arafah Islami Bank Ltd.
(12.89%), First Security Islami Bank Ltd (11.22%), Social Islami Bank Ltd (8.30%),
Shahjalal Islami Bank (7.56%), Union Bank (1.46%) and ICB Islami Bank Ltd (0.85%).
Figure 4.12:Share Investment made by Islami Banks

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Union; 2%
IBBL; 48%

FSIBL; 14%
EXIM; 9%
Al Arafah; 16%

ICB; 1% SIBL; 10%

Analysis: This pie shows that IBBL is the higher share of investment than other banks. Where
other banks portion are almost same.
4.12: Rate of Recovery:
Table 4.12: Rate Of Recovery:
Year

2009

2010

2011

2012

2013

Rate Of Recovery

99.03%

99.37%

99.58%

99.72%

99.70%

Figure 4.12:Rate Of Recovery:


Figure 4.12: Rate Of Recovery:

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6
6
6 1

2013

5
5
5 1

2012

4
4
4 1

2011

3
3
3 0.99

2010

2
2
2 0.99
1
1
1
0
0
0

2009

500

1000

1500

2000

2500

Analysis: After observing the given graph, Rate of recovery rapidly increased year to year. That
is positive sign for the organization.

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5.1: Summary Of Findings:


Most of the people in our country have a bad impression of IBBL,s operations
regarding indirect generation of interest which meaning no difference between
investment of IBBL loan / Credit / advance of conventional banks for this reason,
they are not too much interested to make investment with IBBL.
Islamic Banking is a new phenomenon in our country during last two decades. So
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majority of our people have no proper knowledge about the activities of Islamic
Banking as well as its investment mechanism hamper large scope of investment of
IBBL.
IBBL which is committed to avoid interest cant invest the permissible part of its
statutory liquidity Reserve and short Term liquidity surplus in those securities.
This Bank cant invest in all economic sectors which are prohibited by the law of
Islam.
Because of improper, insufficient application of Islamic Banking rule in our country
the investment operations of IBBL cant run smoothly.
Profitable investment portfolio of IBBL requires clear investment knowledge
according to Islamic shariah. But sometimes IBBL cant invest its assets in proper
portfolio due to insufficient and unskilled manpower in these regards .As a result,
there is a large amount of money being idle and thus potential profit is not increasing.
IBBL has no strong promotional activities to increase motivate its present and
potential investment client.
This Bank revalues its investment operations within limited number of investment
modes and does not initiate investment modes according to changing a diverse needs
of people.
Sometimes investment operations of IBBL are hampered due to increase, dishonest,
indiscreet, hypocritical nature of people.
In IBBL , there is no profit-loss sharing system of Mudaraba & Musharaka.
Investment in Bai-Murabaha and HPSM is much more than other investment modes.
In 2013, investment in Bai-Murabaha is tk. 225876 and HPSM is Tk. 95481
million. On the other hand in 2013, investment in Musharaka is the lowest which is
tk. 13838 million.
Investment in industrial and commercial is much more than other investment sectors.
In 2013, investment in industrial and commercial is Tk. 121531 million and Tk.
39135 million respectively.
The investment growth in transport, rural development scheme and small business
investment scheme is significantly increasing over the last five years. But investment
in the agriculture sector has been increasing over the years 2012-2013.
Surplus equity of IBBL is sufficient. Also the capital adequacy ratio of IBBL is
satisfactory over last five years.
Islami Bank Bangladesh Limited diversifies its investment in urban and rural areas.
91.63% of IBBLs total investment is in urban areas while in rural areas it is 8.37%.
IBBL is the second largest Bank in investment among the Banks of Bangladesh.

5.2: Recommendations:
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Though Islami Bank Bangladesh Ltd. (IBBL) is performing well but it has some crucial areas
to improve which are prescribed below:

There is a difference between investment of IBBL loan/ credit/ advance of


conventional banks because IBBL dont give loan, they give investment & they take
their percentage when their investment purpose is profited. On the other hand,
conventional bank give loan & take their percentage after a fixed period. This
difference should be known to the people or customer.
Islami bank can invest in all economic sector if that project is not haram so that those
project should be helpful for the people. So, people who want to start a business
should be honest and peacefull. If peoples are honest, Islami bank should be invested
in all economic sector. This should be remined to the people.
IBBL cant invest its assets in proper portfolio due to insufficient and unskilled
manpower in these regards .As a result, there is a large amount of money being idle
and thus potential profit is not increasing. For this reason, they have to appoint some
skilled manpower & have to be trained about investment so that this trained people
can give knowledge to the people.
IBBL has to be a strong promotional activities so that it can increase & motivate its
present and potential investment client. Thats why client will be invested more next
time.
Islami bank only use the Bai-Murabaha mode. They have to use the other investment
mode. Thats why there will be a change of diverse needs of people.
Since investment operations of IBBL are hampered due to increase, dishonest,
indiscreet, hypocritical nature of people so bank have to identify the real people so
that there is no hampered is create

5.4: Conclusion:
Islami Bank Bangladesh Limited is also playing a important role in establishing Islamic
Economics by combining the economic values with social and moral values. By following the
novelty of Islamic Economics the bank is trying to make a balanced development between
spiritual and material life. In my report I have tried to draw a clear cut picture of the investment
Mechanism of the Islami Bank Bangladesh Limited (IBBL) as a whole as well as the Local
Office Branch of IBBL. From my study it is clear to me that total modern banking system can
be run on the basis of Islamic Shariah. A large number of investment products are available in
Islamic economy. Today Islami Bank Bangladesh Limited (IBBL) is offering some of these
investment products due to the lack of rules & regulation as well as present socio economic
situation of our country. But IBBL is trying its best to follow the Islamic Shariah properly. We
can hope that the day is not so far when the total economy of our country will be run by Islamic
principles & Islami Bank Bangladesh Limited (IBBL) will be the modern international banking
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system by offering up to date investment & deposit products on the basis of Islamic Shariah to
develop the standard of living of the people. On the basis of the empirical review of the
previous studies on Investment Modes and Mechanism of Islamic Banking, it can be mentioned
that the modes of investments are different from those of conventional ones.
Reference
Book:
o Text Book on Islamic Banking Publishes by Islamic Economics research
Bureau.
o Principle & Practice of Islamic Banking Written by Abdur Rakib (EVP), IBBL.
o Islami Banking written by A.A.M. Habibur Rahman.
o Book, Journals related to Islami Banking.
o An Overview of ADC Portfolio of IBBL.
o Booklet namely Introduction of Islami Bank Bangladesh Ltd
Publication:
1. Annual Report of 2013
2. Materials Supplied by IBTRA. (sheet)
Internet:
Websites
www.islamibankbd.com
www.ibtra.com
www.bangladesh-bank.org
www.scribd.com
www.wikipedia.com
http://issuu.com/rose1990/docs/investment_mechanism_of_islami_bank_684b15ddd4b9c3

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