31. INTRODUCTION

1.1 Origin of the Report

The report is for the partial fulfillment of the course requirement as the internee students in the BBA Program different universities. We have completed our 60 days internship program from Islami Bank Bangladesh Limited, Head Office Complex Corporate Branch. The internship program in Islami Bank Bangladesh Limited is designed into two phases: 10 days in Islami Bank Training and Research Academy (IBTRA) and the remaining period in branches to gather practical knowledge about Islamic Banking as well as enrich knowledge about Islamic banking, Islamic economy and different aspects of Islam.

1.2 Research Topic

]The topic of the research is Investment Mechanism of IBBL. Islami Bank Bangladesh Limited is the leading profit achieved private commercial bank in the country. The research is conducted to find out the core investment mechanisms through different modes of investment in different sectors of the country and the secret behind their success. At the end it is identified how far they are from their target that they fixed. Beside these, the research also attempts to other core issues related with the performance of Islami Bank Bangladesh Limited.

1.3 Problem Statement

Lack of adequate knowledge in the field of Islamic Banking, their activities and area of performance among the citizens of Bangladesh - encouraged us to conduct our research in such topic.

1.4 Objectives

This report consists of two core parts with different related objectives which are mentioned below

1.4.1 Organization Part To outline the concept of Islamic Banking To trace out the history and operation of Islamic Banking in Bangladesh To study the difference between the traditional banking system and the Islamic banking system To realize the ultimate goal of Islamic banking

1.4.2 Project Part To identify all the investment mechanisms followed by the Islami Bank Bangladesh limited To identify all the modes of investment followed by Islami Bank Bangladesh Limited prior to other conventional Banks in Bangladesh To indicate the special schemes under investment modes of Islami Bank Bangladesh Limited To identify the problems faced by Islami Bank Bangladesh Limited regarding investment To give recommendation to overcome the problems and for further improvement

1.5 Methodology

1.5.1 Source of DataBoth primary and secondary data sources are used for the study:

Primary data: These types of information were collected by interviewing knowledgeable personnel working in different departments of the organization. The designations of the interviewed persons within the organization are: Senior Vice President and Manager of IBBL, Head Office Complex Corporate Branch Assistant Vice President and 2nd officer of IBBL, Head Office Complex Corporate Branch Other employees of IBBL, Head Office Complex Corporate Branch Different faculty members of IBTRA

Secondary data: Secondary data are gathered from the Annual report of the Bank, website of Islami Bank and other published materials from the Public Relation Department of Head Office and different course materials of different faculty members of IBTRA.

1.5.2 Literature SurveyExtensive literature survey has been done to gather theoretical knowledge for the research problem. The literature survey includes the academic journals, Annual reports, booklets and lecture sheets of IBTRA. Different books of prominent Islamic economists also studied thoroughly to get the clear concept about Islamic banking.

1.5.3 Research DesignThe research has an exploration purpose. The research design is a flexible one that provides opportunity for considering many different aspects of the research problem. The needed information for the research is collected from both primary and secondary source, which are described later. The information thus collected has been analyzed with due guideline by the supervisors both at Islami Bank Bangladesh Limited and our universities.

1.5.4 Data Collection MethodThe data collection methods used are as follows:

Interview: Extensive interview has been conducted within the organizations to find out their past and present experience of banking. The senior officials in the banking industry are also interviewed to get the industry point of view.

Study: The secondary data source has been studied to find out the data needed. 1.5.5 Analysis of DataAs the research is descriptive in nature, the collected data is converted into presentable statement. The opinions and views gathered are converted to past trends and future predictions of the banking industry.

1.6 Scope and Limitations

Despite the diligent efforts that have given in preparation of this report, we have only succeeded to skin the surface of the ocean of the subject. Therefore the views expressed in this report are likely to be limited by our lack of extensive knowledge and understanding.The followings are the limitations that we have faced during the research:1. Non-cooperation from some of the vital sources. 2. Lack of adequate relevant formal research work on Islamic Banking.3. The bank confidentially keeps the data.4. The data that seems insufficient may be suffering from lack of reliability to some extent.5. Lack of depth knowledge and analytical ability for writing such report.6. Time constraint.7. Budget.

1.7 Report OrganizationThe report is organized primarily in two broad parts, one is the organization part and the other is the project part. In the organization part the bank, Islamic banking concept in Bangladesh as well as around the world, IBBLs functional departments, services, management practice and organizational climate is described briefly. In the project part overall investment policies are described elaborately with overall mechanisms and modes of investment of IBBL in comparison with other banks in the industry is analyzed.

2. ISLAMIC BANKING IN THE WORLD

2.1 Calls for Islamic Banking

For an expanding economy, a developed and efficient banking system is indisputable. Among others, it helps transfer of financial resources from surplus units to deficit units and, hence, accelerates the pace of development by securing uninterrupted supply of financial resources to people engaged in numerous economic activities. Both commercial banks and other development financial institutions provide short, medium and long term credits to businesspersons and entrepreneurs who usually take the lead in the ventures of economic development.Institutional supply of credit has been made possible by a system of financial intermediation organized in a way where conventional banks collect small savings from public by offering them a fixed rate of interest and advancing the loan able funds out of the deposited money to enterprising clients charging relatively higher rates of interest. The margin between these two rates is the banks income. In addition, banks also provide other services to the public for which it charges service charges. Despite the outstanding contribution of the conventional (interest based) banking system several ancient and modern economists are critical about its efficiency level. Some economists consider the role of interest in the conventional banking mechanism as a major negative factor that contributes to the cyclical fluctuation in the economy (Minsky, 1982). More recent concern over the potential instability of the world monetary and financial system was expressed by Maurice Allais, a noble laureate, in the Called for an Urgent Reform of the World Economic Order (Allais 1993, p. 13-16). Others vehemently oppose the argument for using the rate of interest as a stabilizing tool in the economy (Saud 1980, p. 18). These called for the emergence of a new system of banking capable taking new challenges that the present world of economy, particularly the financial sector has been facing.To create a sound economic system all the nations of the world urge to fashion and design their economic lives in accordance with the precepts of Islam. In this regard all the conventional banks are trying to reform their financial structure according to the light of Islam.

2.2 Meaning of Islamic Banking

An Islamic bank is a financial institution that operates with the objective to implement and materialize the economic and financial principles of Islam in the banking arena. The definition of Islamic Bank, as approved by the General Secretariat of the OIC is stated in the following manner, An Islamic Bank is a financial institution whose status, rules and procedures expressly states its commitment to the principle of Islamic Shariah and to the banning of the receipt and payment of interest on any of its operation (Ali, M and Sarker, A. A. 1995)Dr. Shawki Ismail Shehta viewing the concept from the perspective of an Islamic economy and the prospective role to be played by an Islamic bank therein opines that It is therefore natural and, indeed, imperative for an Islamic bank to incorporate in its functions and practices commercial investment and social activities, as an institution designed to promote the civilized mission of an Islamic economy (ibid).It appears from the above definitions that Islamic banking is a system of financial intermediation that avoids receipt and payment of interest in its transactions and conducts its operations in a way that it helps to achieve the objectives of an Islamic economy. Alternatively, this is a banking system whose operation is based on Islamic principles of transactions of which profit and loss sharing (PLS) is a major feature, that ensuring justice and equity in the economy. That is why Islamic banks are often known as PLS- banks.

2.3 Objective of Islamic Banking

The objectives of Islamic banking are not only to earn profit, but to do good and welfare to the people. Islam upholds the concept that money, income and property belong to Allah and this wealth is to be used for the good of the society. Islamic banks operate on Islamic principles of profit and loss sharing, thus strictly avoiding interest, which is the root of all exploitation and is responsible for large-scale inflation and unemployment. An Islamic bank is committed to do away with disparity and establish justice in the economy, trade, commerce and industry; build socio-economic infra structure and create employment opportunities.

2.4 Islamic Banking Movement around the World

The expansion and unfolding of Islamic banking along with traditional interest based banking is a recent phenomenon. Islamic banking is an inseparable part of Islamic economy. During the fifties it was only a subject matter of research and was limited to the writings of scholars and philosophers. During the sixties actual experiments were made and in the seventies Islamic banking institutions started gaining strength. The eighties and nineties are the period of consolidation and now Islamic banking is coming up as the only welfare banking system of the modern world.

The first attempt: Interestingly, the concept of Islamic Banking is several decades old. The first attempt to establish an Islamic financial institution took place in Pakistan in the late 1950s with the establishment of a local Islamic bank in a rural area (Wilson 1983). Some pious landlords who deposited funds at no interest, and then loaned to small landowners for agricultural development initiated the experiment. The borrower did not pay interest on the credit advanced, but a small charge was levied to cover the bank's operational expenses. The charge was far lower than the rate of interest.

The second attempt: The second pioneer experiment of putting principles of Islamic banking and finance into practice was conducted in Egypt from 1963 to 1967 through the establishment of the Mit Ghamar Savings Bank in a rural area of the Nile Delta. The experiment combined the idea of German savings bank with the principles of rural banking within the general framework of Islamic values (Ahmed 1992). The bank's operation was based on the same Islamic principle i.e. no-interest to the depositors or from the borrowers. Unlike the Pakistani bank, the borrower had to have deposits in the bank in order to request a loan. The experiment soon became successful, more branches were opened in different parts of the country, and the amount of deposits increased. Hence, what started as a single bank operation expanded to form a network of local savings banks. Although the project made a good start and initial results were more than encouraging, it suffered a setback owing to charges in the political atmosphere. Nevertheless, the project was revived in 1971 under the name of Nasser Social Bank. This was the first Islamic bank in an urban setting based in Cairo. The bank was a public authority with an autonomous status (Ahmed 1992). The principles of operation of the Nasser Social Bank were very similar to those of the Mit Ghamar Savings Bank. However, the latter offers a full range of normal banking services and a wide range of investment activities through equity participation (Ashker 1987, pp. 18-35).

Tabung Hajji: a successful attempt- Islamic banking, with a very different approach contemporary to that in Egypt, emerged in Malaysia. It was a financial institution developed for the pilgrims of Malaysia. These institutions were established in response to what was the contention of the Malaysian Muslims that money spent on pilgrimage must be clean and untamed 'with Riba, since this was not possible created. Consequently, Pilgrims Savings Corporation was established in 1963, which was later on incorporated into the Pilgrims Management Fund Board (Tabung Hajji) in 1969 (A. Ahmad 1993).

Other attempts: Next to follow was the Dubai Islamic Bank in 1975. The Dubai Islamic Bank is a public limited company having its office Dubai, U.A.E. with capital of 50 million Dirhams. Since then, a number of Islamic banks and financial institutions have been established in different parts of the world and have been functioning successfully.

A significant development in Islamic banking has been the granting of an Islamic bank license in Saudi Arabia to the fifty-year old ''Al-Rajhi Company", a firm noted for its currency, exchange and commercial activities, whose assets exceed $ 5 billion. The firm started operation in 1985 under the name of "Al-Rajhi Banking Investment Corporation" and has since developed active relationships with major manufacturing and trading companies in Europe and several U.S. corporations. (Mangia, Uppal & Swiimy, 1988, p. 54).An example of multi-cooperation at the government level in the field of Islamic banking is the Islamic Development Bank, which was founded in 1975 as a multi-national corporation by several Muslim countries. The purpose of the bank is to support and economic development in Muslim nations within an Islamic Framework.A second example of Islamic banking in the West comes from Luxembourg, where the Islamic Banking System International Holding was established in 1978 as a joint-stock company. Its purpose was to establish international Islamic banks in different parts of the western countries where there are communities of Muslims, and to participate in investment projects in Islamic and non-Islamic countries.

Dar-al-mul-al-Islami (DM1), based in Geneva, was established in 1981. DMI aims to foster an Islamic financial system based on equity and social justice by incorporating three types of institutions including banking of the 1970s. The movement was made to establish Islamic financial institutions side-by-side with traditional banking. In such attempts, two types of institutions were evolved: Islamic banks were established mostly in Muslim countries; and Islamic investment and holding companies started in some Muslim but mostly in non-Muslim countries.

The process of Islamization of Islamic banking in Iran has proceeded in three distinct phases: Nationalization, restructuring and reorganization of the entire banking system characterized phase one taking place between 1979 and 1982. (Khan & Minikhor 1989). The second phase began in 1982 and lasted until 1986. It was a phase primarily characterized by adoption of legislative and administrative steps in order to implement a clearly articulated model of Islamic banking (Iqbal & Mirakhor 1987, p. 106). The third phase, which continues till now, began in 1986. This phase defines the role of the Islamic banking system differently from the earlier phases- The system is now expected to be an integral part of the Islamic government, and thus a direct instrument of its policies.

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

2.5 Islamic Banking in Bangladesh

In August 1974, Bangladesh signed the Charter of Islamic Development Bank and committed itself to reorganize its economic and financial system as per Islamic Shariah. In January 1981, the then President of People's Republic of Bangladesh while addressing the 3rd Islamic Summit Conference held at Makkah and Taif suggested, "The Islamic countries should develop a separate banking system of their own in order to facilitate their trade and commerce." This statement of the President indicated favorable attitude of the Government of the Peoples Republic of Bangladesh towards establishing Islamic banks and financial institutions in the country.Earlier in November 1980, Bangladesh Bank, the country's Central Bank, sent a representative to study the working of several Islamic banks abroad. In November 1982, a delegation of IDB visited Bangladesh and showed keen interest to participate in establishing a joint venture Islamic bank in the private sector. They found a lot of work had already been done and Islamic banking was in a ready form for immediate introduction. Two professional bodies - Islamic Economics Research Bureau (IERB) and Bangladesh Islamic Bankers' Association (BIBA) made significant contributions towards introduction of Islamic banking in the country. They came forward to provide training on Islamic banking to top bankers and economists to fill-up the vacuum of leadership for the future Islamic banks in Bangladesh. They also held seminars, symposia and workshops on Islamic economics and banking throughout the country to mobilize public opinion in favor of Islamic banking.Their professional activities were reinforced by a number of Muslim entrepreneurs working under the aegis of the then Muslim Businessmen Society (now reorganized as Industrialist and Businessmen Association). The body concentrated mainly in mobilizing equity capital for the emerging Islamic bank. At last, the long drawn struggle to establish an Islamic bank in Bangladesh became a reality and Islami Bank Bangladesh Limited was established in March 1983 in which 19 Bangladeshi national, 4 Bangladeshi institutions and 11 banks, financial institutions and government bodies of the Middle East and Europe Including IDB and two eminent personalities of the Kingdom of Saudi Arabia joined hands to make the dream a reality. Later, some other Islamic Banks, Islamic Insurance Companies and Financial Institution were established in the country. They are:

Name of the Islamic financial institutionsTime of incorporation

Al-Baraka Bank Limited (ICB Islami Bank Limited)20 May 1987

Al Rajhi Banking Investment CorporationSaudi Arabia1985

Al Arafah Islami Bank Limited27 September 1995

Social Investment Bank Limited22 November 1995

Shamil Bank of Bahrain EC (Islamic Bankers)1997

Shahjalal Islami Bank Limited10 May 2001

Shamil Bank of Bahrain EC (Islamic Bankers)1997

EXIM Bank Limited (Converted to Fully Islamic)2003

First Security Bank Limited (Converted to Fully Islamic)2006

Again some interest based traditional banks like Prime Bank Ltd, Dhaka Bank Ltd, Southeast Bank Ltd, The Hong Kong and Shanghai Banking Corporation Limited (HSBC) introduced their Islamic banking branches in the country. At present, in parallel with their interest-based banking, many conventional banks operate Islami banking through their Islami banking branches.

3. ISLAMI BANK BANGLADESH LIMITED

3.1 Corporate Information (2011)

Date of Incorporation: 13th March, 1983Inauguration of First Branch: 30th March, 1983Formal Inauguration: 12th august, 1983Authorized Capital: Tk. 20,000.00 MillionPaid up Capital: Tk. 10007.71 MillionBranches: 266Deposits: Tk. 341,361.00 MillionInvestments: Tk. 341,031.00 MillionImport: Tk. 301,207.00 MillionExport: Tk. 178,244.00 MillionRemittance: $ 2,896.93 MillionManpower: 12000Number of Shareholders: 63,001ATM Booth: 1035

Chairman: Prof. Abu Nasser Muhammad Abduz ZaherManaging Director: Mohammad Abdul MannanCompany Secretary: Abu Reza Md. Yeahia (C.P.)Auditors: M/S. Howladadar Yunus & Co. and M/S. S.F. Ahmed & Co.

REGISTERED OFFICEIslami Bank Tower40, Dilkusha Commercial AreaDhaka-1000, Bangladesh, GPO Box No.: 233Phone: PABX-9563040 (Hunting 8 Lines), 9560099, 9567161,9567162,9559417Telex: 671620 IBANKBJFax : 9564532, 9568634, Cable : ISLAMIBANKS.W.I.F.T:IBBLBDDHE-mail: ibbl@ncll.com, ibbl@agni.comwebsite: www.islamibankbd.com

3.2 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 through diversified investment operations particularly in the priority sectors and less development areas of the country. To encourage socio-economic development and financial services to the low-income community particularly in the rural areas.

3.3 Vision

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

3.4 Aims and Objectives

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

3.5 Management of IBBL

Islami Bank Bangladesh Limited is managed by a 16-member board of directors. Of the directors 3 are foreigners and 10 are local. A 8-member executive Committee, formed by the Board of Directors for efficient and smooth operation of the bank of them 2 are foreigners. Besides a management committee looks after the affairs of the bank.

Investment Mechanism of Islami Bank Bangladesh Limited

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3.6 SWOT Analysis

SWOT analysis is an important tool for evaluating the companys strength, weaknesses, opportunities and threats. It helps the organization how to evaluate its performance and scan the micro environment, which intern would help the organization to navigate in the turbulent ocean of competition.

3.6.1 StrengthsSome of the core strengths of Islami Bank Bangladesh Limited (IBBL) are given below: Company Reputation: Islami Bank Bangladesh Limited (IBBL) has already established a favorable reputation in the banking industry of the country. Within a period of over twenty one years, IBBL has established a firm footing in the banking sector having tremendous growth in profits and deposits. Sponsors: IBBL has founded by a group of eminent entrepreneurs among which 19 Bangladeshi national, 4 Bangladeshi institutions and 11 banks, financial institutions and government bodies of the Middle East and Europe including IDB and two eminent personalities of the Kingdom of Saudi Arabia. Therefore IBBL has a strong financial strength and is build upon a strong foundation. PLS Banking System: Instead of creditor-debtor relationship between the client and the bank of conventional banks in the industry IBBL ensures a partner-partner relationship with its clients. Under this system, bank share the profit as per agreement and loss (if any) as per equity or agreement. Leadership: At IBBL, eminent banker Prof. Abu Nasser Muhammad Abduz Zaher as the chairman of the bank heads the management team. His years of banking experience at IBBL and others have enabled him to navigate the organization in the turbulent ocean of fierce competition ant taking IBBL in the new millennium. Like the chairman, the top management of the bank is also a major strength for the IBBL and has contributed heavily towards the growth development of the bank. Facilities and Equipments: IBBL has adequate physical facilities and equipments to provide better service to the customers. The bank has computerized banking operations, counting machine in the teller counter, computerized statements for the customers as well as for the internal use of the banks are also available. Head Office Complex, Local Office and Foreign Exchange Branch use online banking facilities for inter branch communication and other branches of Dhaka city will be under the network soon. Shariah Council: IBBL has its own Shariah Council for guiding and supervising the implementation and compliance of Islamic Shariah principles in all branches activities of the bank since its very inception. The council consists of prominent Ulama, reputed banker, renowned lawyer and eminent economists, meet frequently and deliberate on different issues confronting the bank on Shariah matters. Islami Bank Foundation: Islami Bank has a separate welfare oriented institution called Islami Bank Foundation which contributes in the welfare of depressed people in the society through various packages. The elaborate description of the foundation is given later in separate section. Number of Branches: IBBL has the highest number of branches among the PCBs around the country. The total number of branches is 266 at the end of the year 2011 and the number will increase in the future. In all the branches IBBL has an interactive corporate culture. Its work environment is very much friendly, interactive and informal.

3.6.2 WeaknessesSome of the basic weaknesses of Islami Bank Bangladesh Limited (IBBL) are given below: Advertising and Promotion: It is a major setback for IBBL and one of its weakest areas. IBBL does not pursue on aggressive campaign. It does not express itself to the general public and are not in lime light unlike other banks except some special magazine. Although it published different booklets about its products and services and there is also Islamic Banking Magazine but there are no billboards and advertisements in the public newspapers and magazines. Disguised Employment: This is also become a growing problem of IBBL. There are people who are only drawing salaries at the end of the month but making a minimum contribution towards the organization. On the other hand there are also people who work hard but are not apprised accordingly. Poor Service Quality: The quality of service delivered to the customers in most of the department and in most of the branches is very law. Recently some Private Commercial Banks have established in the country for the last five to ten years with their upgraded and standard service to the customers. But IBBL remains with their traditional service quality which seems inadequate compared to the competitors in the industry. If this trend continues, IBBL will soon fall into the category of the traditional banks. Low Remuneration Package: Te remuneration package for the entry level and mid level management is considerably low compare with pay structure of the other PCBs in the industry. Under this low pay structure it will be very difficult to attract competent MBAs in the near future for IBBL. Lack of Qualified System Operators and Computer Operators: IBBL need some qualified system operators and computer operators to coup up with the existing demand of the customers. The online banking system is not introduced yet. Too Much Paper Work: As an interest free bank IBBL has to engage in direct buying and selling unlike other conventional banks. As a result they have to maintain so many paper and agreement or deal with its customers and investors. This too much paper work makes the service slower than other banks in the industry.

3.6.3 OpportunitiesSome of the significant opportunities of Islami Bank Bangladesh Limited (IBBL) are given below: Diversification: IBBL can pursue a diversification strategy in expanding its current line of business. The management can consider option of starting merchant banking or diversify in to insurance. By expanding their business portfolio, IBBL can reduce their risk. Online Banking: IBBL can move towards the online banking. It is the high time that they go for this because the foreign banks as well as some local banks have already introduced online banking system and their customers are benefited from that. Credit Cards and Tele-banking: These are the new retail banking services provided by the foreign banks. These are the new development in the banking sector and IBBL can evaluate the option of launching credit cards and tele-banking system. New Products and Services: IBBL has the opportunity to introduce new investment schemes for the different sector of the country and at the same time it can introduce various welfare services for the poor and deprive people of the country through the foundation.

3.6.4 ThreatsSome of the big threats of Islami Bank Bangladesh Limited (IBBL) are given below: Multinational Banks: The emergence of multinational banks and their rapid expansion becomes a threat to the existing PCBs. Due to the booming energy sector more foreign banks are expected to arrive in Bangladesh. Moreover, the existing foreign banks like Standard Chartered and HSBC are expanding their operation even HSBC recently introduced Islamic banking branch in the country. Contemporary Banks: The contemporary banks of IBBL can also pose a threat to Islami Bank Bangladesh Limited. Recently some private banks converted their operation into Islamic Banking such as Shahjalal Islami Bank Ltd, EXIM Bank Ltd etc. again some other commercial banks introduced some Islamic banking branches too. Moreover the existing Islami banks in the country introduced new products that may cause of threat for IBBL. Limited Scope for Expansion: This problem is faced by the entire banking sector of the country. Because of present economic slowdown, there is hardly any new deposit creation as there few investments and savings accompanied by a galloping inflation. As a result banks are not being able to attract absolutely new depositors but rather they have to hunt or snatch away depositors from other banks. Default Culture: It is a very common threat for the banking sector of Bangladesh. According to PLS banking system, Islami Bank Bangladesh Limited makes exchange of goods its default amount and provision for bad debt is relatively lower than the other commercial banks. But more strong and applicable laws are required to overcome this problem.

3.7 Functions of IBBL

The functions of Islami Bank Bangladesh Limited are as under: To maintain all types of deposit accounts. To make investment. To conduct foreign exchange business. To extend other banking services. To conduct social welfare activities through Islami Bank Foundation.

3.8 Branch Network

Recently there are 266 branches of Islami Bank Bangladesh Limited are offering services all over the country. The Bank plans to gradually open more Branches covering important commercial places both in urban and rural areas. 7 (seven) Administrative Officers /Zones are functioning all over the country for effective control, close supervision and proper monitoring of the total operations of the Branches as well as assisting them in the development of business.

3.9 Shariah Council of Islami Bank Bangladesh Ltd

There is a Shariah Council of the Bank that consists of prominent Ulama, reputed Bankers, renowned Lawyers and eminent Economists to advise and guide on the implementation and compliance of Shariah principles in all the activities of the Bank particularly on the modes of investments. The Council enjoys a special status in the structure of the bank that meets frequently and plays a vital role. It also conducts Shariah inspection of Branches to ensure that the Shariah principles are implemented and complied with by the Branches of the Bank.

3.10 Membership in International and National Bodies

3.10.1 International AffiliationsThis Bank is a member of the under noted Foreign Organizations: Accounting and Auditing Organizations for Islamic Financial Institutions (AAOIFI), Manama, Bahrain General Council for Islamic Banks and Financial Institutions (GCIBFI), Manama, Bahrain and has also become member of the Executive Committee of GCIBFI. International Chamber of Commerce-Bangladesh

3.10.2 Local AffiliationsThe Bank is also member of the under noted Local Originations: Bangladesh Institute of Bank Management (BIBM) The Institute of Bankers, Bangladesh (IBB) Bangladesh Foreign Exchange Dealers' Association (BAFEDA) Central Shariah Board for Islamic Banks in Bangladesh Islami Banks Consultative Forum (IBCF) and Dhaka Chamber of Commerce & Industry

3.11 Role and Contribution of IBBL to Bangladesh Economy

Islami Bank Bangladesh Limited has many success stories of achievements. These are summarized below: IBBL is the pioneer institution for introduction of Islamic Banking in Bangladesh. The success of IBBL has imbibed other sponsors at home and abroad to establish Islamic Banking in Bangladesh. Four national, two international Islamic banks have since been established in the country. Some private sector traditional bank has also established full-fledged Islamic Banking branches. Several other existing and proposed traditional banks have also expressed their intention to introduce Islamic Banking. IBBL has successfully mobilized deposits from a section of people who hither-to-before did not make any deposit with interest-based banks. The Islamic Banking products which are offered by IBBL through its 141 branches located at important centre all over the country and spontaneous acceptance of those products by the people proves the superiority of Islamic banking. IBBL's market share of deposit investment and ancillary business is steadily increasing. IBBL, though still a tiny bank, handles more than 10% of country's export and import trade. Among the contemporary commercial Banks IBBL's position is first in respect of mobilization of deposit, deployment of fund and earning profit. Investment in industrial sector occupies nearly 33% of IBBL's investment portfolio. This is a unique example of industrial-finance by a commercial Bank. More than 1.15,000 workers are employed in the industrial projects financed by IBBL. IBBL has thus made significant contribution to solving unemployment problem of the country. Dhaka- the capital of Bangladesh being a Mega city- has acute transport problem. IBBL has joined hands with an enterprising group to introduce a fleet of Premium Bus service, which has attracted the attention of all section of the people and mitigated transportation problem of the city to some extent. IBBL has introduced several other welfare oriented investment schemes, such as Small Transport Investment Scheme, Small Business Investment Scheme, Agriculture Implements Investment Scheme, Poultry Investment Scheme, Household Durable Investment Scheme, Housing Investment Scheme etc. IBBL launched a Rural Development Scheme for providing finance to drawn-trodden section of the populace- an area where no other Commercial Bank has extended any finance. IBBL's mission is to reach to all 68,000 villages of the country as early as possible. IBBL has contributed a remarkable amount as income tax to the Government Exchequer on its net profit over the last 20 years. At the initiative and drive of IBBL, several Universities in Bangladesh, have introduced Courses on Islamic Banking and finance. Due to constant persuasion of IBBL the Government has granted license for establishment of an Islamic Insurance Company. By now two (2) Islamic Insurance Companies have started business. IBBL has earned reputation in the country as a corruption free institution. IBBL is held in high esteem in the banking circle as a good managed bank. IBBL has taken initiative to form an Association of Islamic Banks in Bangladesh for furtherance of the causes of Islamic banking. IBBL has established a foundation called 'Islami Bonk Foundation' for carrying out social welfare activities. The foundation has taken up a number of schemes covering the whole of Bangladesh.

3.12 Achievement

Pioneer in Islamic Banking running its entire operation based on Islamic Shariah. Shariah Council comprising of leading Ulama, renowned economists, lawyers operation. Never participate in the interest based money market operations. Never borrowed from any source either inside or outside the country. A transparent and corruption free operation for the last 29 years in a row. Regular and timely holding of AGM declaring good dividend since 1989 without break till 2002, except in the year 1992. Largest contributor of Tax to the Government exchequer from the private sector banks receiving CIP status from the Government almost every year. Received the best bank in Bangladesh Awards from Global Finance, UK in 1999, 2000 & 2004. It is connected to 830 offices of 230 foreign banks in 74 countries. IBBL received A+ rating in CRISL ( Credit Rating Information & Services)

4. INVESTMENT POLICY

4.1 Investment Operation

Investment operation of a Bank is an important operation among other operations of the bank. 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. As such, for efficient deployment of mobilized resources in profitable, safe and liquid investments, a sound, well-defined, well-planned and appropriate Investment Policy framework is necessary prerequisite for achieving the goal of the Bank.The special feature of the investment policy of the Bank is to invest on the basis of profit-loss sharing system in accordance with the tenets and principles of Islami Shariah. Earning of profit is not the only motive and objective of the Bank's investment policy rather emphasis is given in attaining social good and in creating employment opportunities.The investment policy aimed at diversification of the investment port-folio by size sector geographical area, economic purpose and securities to bring in phases all sectors of the economy and all types of economic groups of the society within the fold of Bank's investment operations.

4.2 Objectives and Principles

The objectives and principles of investment operations of the Bank are: To invest fund strictly in accordance with the principles of Islami Shariah. To diversity its investment portfolio by size of investment, by sectors (public and private) by economic purpose, by securities and by geographical area including industrial, commercial & agricultural. To ensure mutual benefit both for the Bank and the investment client by professional appraisal of investment proposals, judicious sanction of investment close and constant supervision and monitoring thereof. To make investment keeping the socio economic requirement of the country in view. To increase the number of potential investors by making participatory and productive investment. To finance various development schemes for poverty alleviation, income and employment generation with a view to accelerate sustainable socio-economic growth and for upliftment of the society. 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 shun even highly profitable investment in fields forbidden under Islamic Shariah and are harmful for the society. The Bank extends investments under the principles of Bai-Murabaha, Bai- Muazzal, Hire Purchase under Shirkatul Meelk and Mudaraba. The Bank is making sincere efforts to go for investment under Mudaraba principle in near future.

4.3 Importance of Assessing Investment Needs

Assessment of Investment needs is necessary for the following reasons: To detect actual Investment limit of Bank. To detect actual Investment against obsolete /out dated/non trading items. To assess the quality, quantity, price and marketability of the commodities. To ensure proper follow-up supervision and monitoring of the Investment. To ensure capacity of the client in handling Investment activities To overcome the situation of Division of found by the clients To ensure trading instead of lending of money. To ensure payment against delivery of goods. To ensure actual buying and selling of goods. To select proper & genuine Investment client. To ensure viability/profitability of the project. To ensure compliance of Shariah Principles. To maintain discipline in the Investment port-folio of the Branch. To secure the Investment. To allow Investment for appropriate period. To handle the Investment proposal efficiently. To ensure investment for productive purpose. To identify the tenure of investment to be made i.e. for short term /middle term/long term. To know the objective of Investment. To ensure profitability of all concerned. To ensure welfare of the society. To ensure Business ethics. To minimize the risk of investment. To ensure recovery of investment in time. To comply with the Bank's target regarding diversification of Investment.

4.4 Induction of Investment Clients

4.4.1 Why of InductionPotential clients may be advised to open Al-Wadiah Current Account, if there is no such account. The client should maintain the current account, satisfactorily for a reasonable period. Preliminary discussion may have with the prospective client regarding his line of business, experience & investment needs. The past performance of the client to be studied and Branch's track record of proposed investment. If the proposal found suitable the client may be asked to submit a formal application along with necessary papers/documents.

4.4.2 Criteria for selectionClients of the Bank for following Investment are to be selected with prudence and good judgment. It should be kept in mind that the person is important than their properties. They must have good character, commitment, capability, integrity and means. Their past performance must be verified first. None should be entertained without verification of his background, experience in the line of business, credit worthiness, financial needs, capacity to handle the finance applied for. Favoritism, personal relationship with a client must not get any consideration for providingBank's Investment. A detailed credit report of the client must be prepared and all necessary information's should be collected and verified at the time of selection of the client. Clients of distant area / beyond control should not be entertained,The following factors / qualities /information may be considered at the time of selection of investment client: Brief history of financial /credit transaction of the client. Social and financial behavior of the client should be verified /assessed. Ability of the client of utilization of credit / Investment fund. Ability of the client regarding repayment of Investment. Equity of the client. Effect of National & International Economic problems/crisis. Analysis of Investment Risk.

The above mentioned factors may be categorized under 5-C's. Character Capacity Capital Collateral

Character(a) The Human Factor Personal Circumstances (nationality, age, health condition, etc.) Credit Track Record Technical Qualifications (including business experience). Capacity to deal with people (or to manage relationships).(b) Management Assessment Business Experience Management Succession Credit Discipline. Lifestyle(c) ExperienceEvery account officer believes that experience in business is anextremely strong test of creditworthiness.Age of applicant

Years in current business/company

Total number of years business experience.

(d) SuccessionStability of business leadership in the event of the owner'sincapacityIs spouse involved in the business?

Are adult children and/or relatives involvedin the business?

Is there a succession plan in place

(e) Personal Finance/Credit DisciplineThe objective is to measure theapplicant's discipline in personaland business financeCredit card bills payments

Others: Power, telephone. Water bills(business & personal)

Existing relationships with other bank'slenders.

(f) LifestyleLifestyle variables are an attempt to measure integrity which in turnis (potentially) positivelycorrelated with investment/ loanrepayment

Personal feedback from employees, customers and suppliers.

Personal feedback from neighbors,community members and Bank personal.

Membership in local or National industryassociation.

Membership in community or religiousinstitution.

Capacity:(a) The Performance Factor Deployment of Resources (How much is the Investment need and how will it be used?) Profitability Prospects of the project and the Enterprise (How will the project impact on the enterprise?)(b) Financial Assessment Profitability. Liquidity. Solvency.

CapitalThe Financial Factor Client's stake in business. Solvency of the enterprise. Availability of reserve resources. Other sources of income.

CollateralThe Security Factor Ensuring the Critical Success Factors of the Business. Quality of Collateral's. Value of Collateral's. Location of Collateral's. Ease of Marketability of Collateral's.

4.4.3 Necessary for preparation of credit reportPreparation of credit report of the investment client is necessary and very much important for the following reasons /purposes. To select investment client carefully and judiciously. To ensure quality investment. To ascertain credit worthiness of the client. To ensure adequate securities both primary and collateral. To ensure clients business establishment and line of business. To ensure proper valuation of Assets and liabilities. To ensure prompt disposal of Investment proposals. To Stoop Malpractices. To handle investment activities efficiently. To administer accountability. To ascertain Joint responsibility of Bank Officials and Investment client. To recover Invested amount in time. To maximize profitability of all concerned. To safeguard interest of the Bank and the Client. To avoid classification of Investment. To avoid stuck-up situation of invested fund.

4.5 Present Status of Banks Investment PortfolioPresently the Bank's export Investment is mostly centered in readymade garmentsand the Bank enters into the area of investment in major traditional andnon-traditional exportable items like jute & jute goods, frozen foods, hosiery products, tea, leather and leather products knitwear (Textile), basic chemical products/pharmaceuticals, electric goods (wires and cables), electronic goods/components, handicrafts, fruit juice concentration projects (small and medium scale only), other.

Besides the existing items of import, the Bank should go for investment in importin the following areas: CDSO being imported by edible refineries Cotton yarn Coal and hard coke Fresh fruits, Spices Dry fruits Pulses Onions C.I. sheet B.P. sheets Motor vehicles Bi-cycle spares Tiers & tubes Bitumen

Bulk investment of all banks (nationalized commercial banks and private commercial banks) is in the hand of limited number of borrowers, though the position of Islami Bank is to some extent better, yet efforts need to be made for further diversification of investment by size of investment accounts and concentration of investment in the hands of limited few clients is to be avoided.

4.5.1 Sector-wise Investment

Table 1: Sector-wise InvestmentSectors20112010

Amount (million)% to total investmentAmount (million)% to total investment

Industrial12227038.9811398943.30

Commercial3823412.504614217.53

Real Estate169665.55113364.31

Agriculture (including investment in Fertilizer and Agriculture Implements)209236.84142525.41

Transport64572.1145831.74

SME10099133.027293327.71

Total305841100263225100

Source: Annual Report 2011

General investment made in the following ways and under the following modes: Bai-Murabaha Bai-Murabaha Post Import Bai-Mujjal Hire Purchase Hire Purchase under Shirkatul-Meelk Musharaka Mudaraba Bai-Salam Leasing Investment AuctioningAny other mode found appropriate which conforms to the principles of Islamic Shariah.

4.5.2 Mode-wise Investment

Table 2: Mode-wise InvestmentMode20112010

Amount (million)% to total investmentAmount (million)% to total investment

Bai-Murabaha17713657.9214613555.52

HPSM8907029.128009330.42

Bai-Muajjal159125.20123934.71

Bill Purchase & Negotiataion27440.9151411.95

Quard56141.8320950.80

Bai-Salam35281.1536241.38

Mudaraba22660.7415000.57

Musharaka95713.13122444.65

Total305841100263225100

Source: Annual Report 2011

4.5.3 Composition of Investment Portfolio

Table 3: Industry wise Investment Position (2011)Sl.ParticularsNo. of Industries% of Total NumberInvestment Amount (million)% of Total Amount

1.Textile- Spinning, Weaving & Dyeing18613.627503146.63

2.Steel, Re-rolling & Engineering604.3975794.71

3.Agro based Industry38127.891721910.70

4.Garments & Garments Accessories20014.64112396.99

5.Food & Beverage241.7666784.15

6.Cement Industry90.6620971.30

7.Pharmaceuticals130.9520311.26

8.Poultry, Poultry Feed & Hatchery594.329970.62

9.Chemicals, Toiletries & Petroleum171.2440952.55

10.Printing & Packaging473.4429121.81

11.Power (Electricity)40.2942812.66

12.Ceramic and Bricks100.7320111.25

13.Service Industry372.7118181.13

14.Bricks and Tiles956.959660.60

15.Petrol-Pump and CNG Filling Station634.618360.52

16.Ship Building60.4440852.54

17.Ship Breaking80.5915150.94

18.Cable80.5915150.94

19.Leather30.22250.02

20.Other Industries1369.96139688.68

Total1366100160898100

Source: Annual Report 2011

Taking into consideration the broad objectives of the Bank, national priority, socio-economic need, growth level of the economy, the investment port-folio of the Bank may gradually be diversified and allocated in terms of size, sector, geographical area, economic purpose, security and mode. The following figure presents the composition of the investment portfolio of the Islami Bank in the different areas.

Figure 2: Composition of Investment Portfolio (2011)

5. Investment Modes

There are three types of Investment Mechanism, which are expressed below:Bai Mechanism (Trading Mode)1. Bai Murabaha2. Bai Muajjal3. Bai Salam4. Bai Istishna'aIjara Mechanism (Leasing Mode)1. Hire purchase (Ijarah)2. Hire purchase under Shirkatul Meelk Share Mechanism1. Mudaraba2. Musharakah

5.1 Bai-Mechanism (Trading Mode)

5.1.1 Bai-MurabahaThe terms "Bai-Murabaha" has been derived from Arabic words Bai and Ribhun. The word Bai means purchase and the word Ribhun means agreed upon profit. "Bai-Murabaha" means Sale on agreed upon profit.Bai-Murabaha may be defined as a contract between a buyer and a seller under which the seller sells certain specific goods (permissible under Islamic Shariah and the Law of the land), to the buyer at a cost plus agreed profit payable in cash or on any fixed future date in lump-sum or by installments. The profit marked-up may be fixed in lump sum or in percentage of the cost price of the goods.

Types of MurabahaIn respect of dealing parties Bai-Murabaha can be divided into two parts. They are as follows:

Ordinary Bai-MurabahaIf there are only two parties, the seller and the buyer, where the seller as an ordinary trader purchases the goods from the market without depending on any order and promise to buy the same from him and sells those to a buyer for cost plus profit, then the sale is called Ordinary Bai-Murabaha.

Bai-Murabaha on Order and PromiseIf there are three parties, the buyer, the seller and the Bank, is an intermediary trader between the buyer and the seller, where the Bank upon receipt order from the buyer with specification and a prior outstanding promise to buy the goods from the Bank, purchases the ordered goods and sells those to the ordering buyer at a cost plus agreed profit, the sale is called "Bai-Murabaha on Order or Promise", generally known as Murabaha.This Murabaha upon order and promise is generally used by the Islami Banks, which undertake the purchase of commodities according to the specification requested by the Clients and sale on Bai-Murabaha to the one who ordered for the goods and promised to buy those for its cost price plus a marked-up profit agreed upon previously by the two parties, the Bank and the Clients.

Important feature It is permissible for the Client to offer an order to purchase by the Bank agriculture goods deciding its specification and committing him to buy the same from the 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 a 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. It is also permissible to document the debt resulting from Bai-Murabaha by a Guarantor, or a mortgage, or both lay 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-Murabaha Agreement. Therefore, the bank must purchase the goods as per specification ofthe Client to acquire ownership of the same before signing the Bai-Murabaha agreement with the Client. After purchase of goods the Bank must bear the risk of goods until those are actually sold and delivered to the Client buyer, the Bank shall bear the consequences of any damages or defects, unless there is an agreement with the Client releasing the Bank of the defects, that means, if the goods are damaged, Bank is liable, if the goods are defective, (a defect that is not included in the release) the Bank bears the responsibility. The bank must deliver the specified goods to the Client on specified date and at specified place of delivery as per Contract. The Bank shall sell the goods at a higher price (Cost + Profit) to earn profit. The cost of goods sold and profit mark-up therewith shall separately and clearly be mentioned in the Bai-Murabaha Agreement. The profit mark-up may be mentioned in lump sum or in percentage of the purchase/cost price of the goods. But, under no circumstances, the percentage of the profit shall have any relation with time or expressed in relation with time, such as month, per annum etc. The price once fixed as per agreement and deferred cannot be further increased. It is permissible for the Bank to authorize any third party to buy and receive the goods on Bank's behalf. The authorized must be in a separate contract.

5.1.2 Bai-Muajjal The terms Bai-Muajjal has been derived from two Arabic words "Bai and "Muajjal". It means sale for which payment is made at a future fixed date or within fixed period. In short, it is a sale on Credit.Bai-Muajjal may be defined as a contract between a buyer and a seller under which the seller sells certain specific goods (permissible under Islamic Shariah and the Law of the Country), to the buyer at a cost plus agreed profit payable in cash or on any fixed future date in lump-sum or by installments. The seller may also sell the goods purchased by him as per order and specification of the Buyer.

Important Features Bank is not bound to declare cost of goods and profit mark-up separately to the client. Sport delivery of the item and payment is deferred. The Bank transfers ownership and possession of the goods to the client before receipt of sale price. Client may offer an order to purchase by the Bank any specified goods and committing himself to buy the same from the Bank on Bai-Muajjal Mode. 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 damage caused by breaking the promise. Cash/Collateral Security should be obtained to guarantee the implementation of the promise or to indemnify the damages. Mortgage/Guarantee/Cash Security may be obtained before/at the time of signing the agreement. Stock and availability of goods is a pre-condition for Bai-Muajjal agreement. The responsibility of the bank is to purchase the desired goods at the disposal of the client to acquire ownership of the same before signing the Bai-Muajjal Agreement with the client. The Bank after purchase of goods must bear the risk of goods until those are actually delivered place of delivery as per contract. The bank must deliver the specified goods to the client on specified date and at specified place of delivery as per contract. The Bank may sell the goods at one agreed price, which will include both the cost price and the profit. The price once fixed as per agreement and deferred cannot be further increased.

5.1.3 Bai-Muajjal Under this mode Bank will execute purchase contract with the client and make payment against purchase of product, which is under process of production. Bai-Salam contract will be executed after making any investment showing price, quality, quantity, time, place and mode of delivery. The profit of the goods is to be negotiated. In this mode the payment (price) of the goods is made at the time of Agreement and the delivery of the goods is deferred.

Important feature:Bai-Salam is a mode of investment allowed by Islamic Shariah in which commodity (ies)/product (s) can be sold without having the said commodity (ies)/product(s) either in existence or physical /constructive possession of the seller. If the commodity (ies)/product (s) are ready for sale, Bai- Salam is not allowed in Shariah. Then the sale may be done either on Bai-Murabaha or Bai-Muajjal mode of investment. Generally, industrial and agricultural products are purchased/sold in advance under Bai-Salam mode of investment to infuse finance so that product is not hankered due to shortage fund/cash. It is also permissible to obtain Mortgage and /or Personal Guarantee from a thirdparty as security before the signing of the Agreement or at the time to signing the agreement Bai-Salam on a particular commodity (ies)/product(s) or on a product of a particular field or firm cannot be effected (for Agricultural Product(s)only). The seller (manufacturer) client may be made agent of the Bank to sell the goods delivered to the Bank by him provided a separate agency agreement is executed between the Bank and the Client (Agent).

5.1.4 Bai-IstishnaaIstishnaa is a contract between a manufacturer/seller and a buyer under which the manufacturer/seller sells specific product(s) after having manufactured, permissible under Islamic Shariah and Law of the Country after haying manufactured at an agreed price payable in advance or by installments within a fixed period or on/within a fixed future date on the basis of the order placed by the buyer.

Important feature: Istishna'a is an exceptional mode of investment allowed by Islamic Shariah in which products can be sold without having the same in existence. In the product(s) are ready for sale. Istishna'a is not allowed is Shariah. Then the sale may be done either in Bai-Murabaha or Bai-Muaajjal mode of investment, in this mode, deliveries of goods are deferred and payment of price may also be deferred. It facilitates the manufacturer sometimes to get the price of the goods in advance,which he may use as capital for producing the goods. It gives the buyer opportunity to pay the price in some future dates or by installments. It is a binding contract and no party or is allowed to cancel the Istishnaa contract after the piece is paid and received in full or in part or the manufacturer starts the work. Istishna'a is specially practiced in manufacturing and industrial sectors. However, it can be practiced in agricultural and constructions sectors also.

5.2 Ijarah Mechanism (Leasing Mode)

5.2.1 Hire Purchase/ IjarahThe term Ijarah has been derived from the Arabic works Ajr and Ujrat, which mean 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 on benefit against a specified consideration or rent from the asset owned by the Hiree. It is a hire agreement under which the Hiree to a Hirer against fixed rent or rentals hires out a certain asset for a specified period.

5.2.2 Hire purchase under Shirkatul Meelk Hire purchase under Shirkatul Meelk is a special type of contract, which has been developed through practice. Actually, It is a synthesis of three contracts: Shirkat, Izara and Sale. Shirkat means partnership, Shirkatul Meelk means share an 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 contract.

Stages of Hire Purchase under Shirkatul Meelk Hire Purchase under Shirkatul Meelk Agreement has got three stages: Purchase under joint ownership, Hire, and Sale and /or transfer of ownership to the other partner Hirer.

Types of sale contract in hire purchase under Shirkatul MeelkAs per procedure of transfer of ownership and legal title of the part owned by the Bank is transferred to the other partner, the sale contract may be of various, some of the major forms are mentioned below:

(a) Hire Purchase under Shirkatul Meelk through gradually transfer (sale) of legal title/ownership of the hired asset/property:Certain asset / property is purchased with equal or unequal equity participation and owned jointly by the two parties, the Bank and the Client. The Bank's share / portion of the asset is hired out to the Client against fixed rent/rentals per unit of time for a fixed period with a promise that the Hire Bank will sell or transfer the ownership of its portion to the Client Hirer gradually part by part in proportion to the consideration paid. So that the Hire's portion of the asset on payment of the total price at the end of the hire period.(b) Hire Purchase under Shirkatul Meelk through Transfer of legal title by gifts (for no consideration).Under this type of Hire Purchase, Hiree will transfer his ownership title to the property to the Hirer through gift without any further consideration. After the expiry of the hire period and payment of all the rent /rentals installment, the title of property may be transferred by a separate gift deed executed by the Hire. Otherwise the title may be transferred by issuing a gift deed by the Hiree making it conditional on the settlement of all rental installments. In the later case, the legal title is automatically transferred as soon as the hire period expires and the fixed rent installments for rent are settled. The working of the agreement would be: If the agreed upon rental installments are settled within the agreed upon period, ownership of the asset will be transferred to the Hirer as gift.

(c) Hire Purchase under Shirkatui Melk Through transfer of legal title (sale) at the end of hire period for a token considerationUnder this contract the possession of the asset owned by the Hire is hired out to the hire for a fixed period against fixed rent / rentals and at the end of the hire period the title to the asset is transferred to the Hirer by a separate sale contract on payment of agreed upon token consideration. The consideration may be equal to the value of the asset or not and it would be sufficient if a mutual agreement is reached on the consideration.

(d) Hire Purchase under Shirkatul Meelk through transfer of legal title (sale) at the end of Hire period for payment of a specified amount to the hire by the hirerThis agreement includes an Ijarah / hire contract and a sale contract. Under this agreement a specific asset is hired out for a fixed period against specific rent mentioning a specific consideration to be paid by the Hirer (buyer) after the expiry of the hire period and upon payment of the agreed upon consideration. The hired asset becomes sold and its title transferred to the Hirer (the buyer). Under the agreement, the hire contract becomes effective firstly sale contract will be effective only after the expiry of the hire contract.

Important Feature: In case of Hire Purchase under Shirkatul Meelk transaction the asset / property involved is jointly purchased by the Hire (Bank) and the Hirer (Client) with specified equity participation under a Shirkatul Meelk Contract in which the amount of equity and share in ownership of the asset of each partner (Hire Bank & Hirer Client) are clearly mentioned. Under this agreement, the Hire and the Hirer becomes co-owner of the asset under transaction in proportion to their respective equity participation. No third party registration shall be allowed. The share / part of purchased asset owned by the Hire (Bank) is put at disposal /possession of the Hirer (Client) keeping the ownership with him (Bank) for afixed period under a hire agreement. In which the amount of rent per unit of time and the benefit for which rent to be paid along with all other agreed upon stipulations are also to be clearly stated. Under this agreement, the Hirer (Client) becomes the owner of the benefit of the asset but not of the asset itself, in accordance with the specific provisions of the contract, which entitles the Hire (Bank) is entitled for the rentals. As the ownership of hired portion of the asset lies with the Hiree (Bank) and rent is paid by the Hirer (Client) against the specific benefit, the rent is not considered as price or part of price of the asset. In the Hire Purchase under Shirkatul Meelk Agreement the Hiree (Bank) does not sell or the Hirer (Client) does not purchase the asset but the Hire (Bank) promise to sell asset to the Hirer (Client) part by part only, if the Hirer (Client) pays the cost price / equity / agreed price as fixed for the asset as per stipulations within agreed upon period on which the Hirer also gives undertakings. As soon as any part of Hire's (Bank's) ownership of the asset is transferred to the Hirer (Client) that becomes the property of the Hirer and hire contract for that share / part and entitlement for rent thereof lapses. The hire contract becomes effective from the day on which the Hire transfers the possession of the hired asset in good order and usable condition to the Hirer, so that the Hirer may make the agreement. Effectiveness of the sale contract depends on the actual sale and transfer of ownership of the asset by the Hire to the Hirer. Under this agreement the Bank acts as a partner, as a Hire and at last as a seller; on the other hand the Client acts as a partner, as a Hirer and lastly as a purchaser. The Hirer cannot make any changes in the exact item of the hire, and / or remove it from its place of installation and transfer it to another location. Without obtaining prior written permission of the Hiree (Bank) In a Hire Purchase under Shirkatul Meelk agreement any stipulation may be made, provided it is not against the nature and requirements of the contract itself, nor does it violate the /this may be the last one divine laws of Islam and is also acceptable to both the parties. The duration of Hire Purchase under Shirkatul Meelk contract shall not exceed the useful life of the subject / asset of the transaction. The Bank should not normally enter a Hire Purchase under Shirkatul Meelk transaction for items with useful life of less than two years. If, for any reason, the hire contract is revoked prior to the transfer of full title of the asset to the Hirer, both Hiree and Hirer will share the title of the asset that part of title, which has been transferred to him against payment and the Hire, will share the remaining part. The Hirer to secure the Bank (the Hire) will pledge / hypothecate / mortgage his portion / part / share in the asset (acquired / to be acquired) and or any other asset / property of his own / third party guarantor to the Bank to fulfill his all liabilities /commitments including the accrued rental, if any.

5.3 Share Mechanism

5.3.1 MudarabaIt is a form of partnership where one party provides the funds while the other provides the expertise and management. The first party is called the Sahib-Al-Maal and the latter is referred to as the Mudarib. Any profit accrued is shared between the two parties on a pre-agreed basis, while capital loss is exclusively borne by the partner providing the capital.

Importer features: Bank supplies capital as Sahib-Al-Mall and the client invest if in the business with his experience. The client maintains administration and management. Profit is divided as per management. Bank bears the actual loss alone. Client cannot take another investment for that specific business without the permission of the Bank

5.3.2 MusharakaMusharaka is an Islamic financial technique that adopts "equity sharing" as a means of financing projects. Thus, it embraces different types of profit and loss sharing partnership. The partners (entrepreneurs, bankers etc.) share both capital and management of a project so that profits will be distributed among them as per rations, where loss is shared according to ratios of their equity participation.

Important feature: The investment client will normally run and manage the business. The Bank shall take part in the policy and decision making as well as overseeing (supervision and monitoring) the operations of the business of the client. The Bank may appoint suitable person(s) to manage the business and to maintain books of accounts of the business property. As the investment client shall manage the enterprise, the Bank may pay more share of profit to him than that of his proportionate capital contribution. Loss, if any, will be shared on the basis of capital ratio.There are two other modes of investment, which have limited impact in our country.

5.4 Quard

The word "Quard" is Arabic which means loan or credit on advance. The literal meaning of Quard is giving "Fungible goods" for use without any extra value returning those goods. It must follow the principle of equal for equal return with homogeneous goods. Fungible goods may be rice, oil, salt, money etc. In banking sector, money is used as quard. Quard is Halal by Islam for not to pay any extra or interest in return. Quard-E-Hasanah is also one kind of Quard, which is given, with the expectation of return or not.

The characteristics of Fungible goods Goods which are vanished /converted for one time use. No flow of service. Service can't be separated from the actual goods.

Characteristics of Quard There should have fungible goods. Goods must be returned equally. There is no extra payment. Specific period for returning goods.

5.5 Operational Procedures of Investment Mechanism of IBBL

IBBL follows the Operational Procedures for all above mentioned investment modes: Induction of client Application Categorization (4 categories) Processing and appraisal Sanction Documentation Purchase of goods by the Bank Taking delivery of goods by the Bank Sales and delivery of goods to the client

Investment Processing of IBBL:

Generally a bank takes certain steps to deliver its proposed investment to the client. But the process takes deep analysis. Because banks invest depositors fund, not banks own fund. If the bank fails to meet depositors demand, then it must collapse. So, each bank should take strong concentration on investment proposal. However, Islami Bank Bangladesh Limited (IBBL) makes its investment decision through successfully passing the following crucial steps: (1)SELECTION OF THE CLIENT

(2)APPLICATION STAGE

(3)APPRAISAL STAGE

(4)SANCTIONING STAGE

(5)DOCUMENTATION STAGE

(6)DISBURSEMENT STAGE

(7)MONITORING &RECOVERY STAGE

(1) Selection of the clientHere, investment taker (client) approaches to any of the branch of Islami Bank Bangladesh Limited (IBBL). Then, he talks with the manager or respective officer (Investment). Secondly, bank considers five Cs of the client. After successful completion of the discussion between the client and the bank, bank selects the client for its proposed investment. It is to be noted that the client/customer must agree with the banks rules & regulations before availing investment. Generally, bank analyses the following five Cs of the client: Character; Capacity; Capital; Collateral; and Condition.

(2) Application stageAt this stage, the bank will collect necessary information about the prospective client. For this reason, bank informs the prospective client to provide and/or fill duly respective information which is crucial for the initiation of investment proposal. Generally, here, all the required documents for taking investment have to prepare by the client himself. Documents that are necessary for getting investment of IBBL is prescribed below:

Trade License photocopy (for proprietorship); Abridged pro forma income statement; Attested copy of partnership deed (for partnership business); Prior three (03) years audited balance sheet (for joint stock company); Prior three (03) years business transactions statement for the musharaka/mudaraba investment; Abridged pro forma income statement for the musharaka/mudaraba investment; Attested copy of the Memorandum of Association (MOA) & Articles of Association (AOA) for the joint stock company; Attested copy of the Tax Identification Number (TIN)- including final assessment; Tenders of the proposed assets (in case of HPSM); Detailed summary of the sundry debtors and creditors (including both time & schedule); Summary of the personal movable & immovable assets; and others.

(3) Appraisal stageAt this stage, the bank evaluates the client and his/her business. It is the most important stage. Because, on the basis of this stage, bank usually goes for sanctioning the proposed investment limit/proposal. If anything goes wrong here, the bank suddenly stops to make payment of investment.

In order to appraise the client, Islami Bank Bangladesh Limited (IBBL) provides a standard F-167B Form (Appraisal Report) to the client for gathering all the information. The original copy of the appraisal report is enclosed in the appendix chapter. However, the following contents are presented from that appraisal report: Companys/Clients Information. Owners Information. List of Partners/Directors. Purpose of Investment/Facilities. Details of Proposed Facilities/Investment. Break up of Present Outstanding. Other Liabilities of the Client/Group. Previous Bankers Information. Details of Sister/Allied Concerns. Allied Deposit as on. Business/Industry Analysis. Relationship Analysis. Asset-Liability position of the client as per Audited Balance Sheet. Working Capital Assessment. Risk Grade. Particulars of the godown for storing MPI/Murabaha goods. Insurance Coverage. Audit Observation. Security Analysis.

(4) Sanctioning stageAt this stage, the bank officially approves the investment proposal of the respective client. In this case client receives banks sanction letter. Islami Bank Bangladesh Limited (IBBL)s sanction letter contains the following elements:1. Investment Limit in million.2. Mode & amount of investment.3. Purpose of investment.4. Period of investment.5. Rate of return.6. Securities Cash/Goods securityIn allowing Murabaha investment and amount of cash security is generally realized from the client (amount depends on the nature of goods, creditworthiness of the client, collateral security obtained etc.) which is converted to goods security after purchase of goods purchased out of banks investment and clients cash security is pledged to the bank, kept under banks custody before its delivery to the client on payment. Example: If, for a Murabaha investment cash security is fixed at 25% Banks investment stands at 75% on the total goods purchased. For example, if cost of total goods purchased is Tk.100000 Banks investment will be Tk.75000 and clients cash security will be Tk.25000.

BankClientTotal cost of goods

Tk. 75000 (75%)Tk. 25000 (25%)Tk. 100000 (100%)

(5) Documentation stageAt this stage, usually the bank analyses whether required documents are in order. In the documentation stage, Islami Bank Bangladesh Limited (IBBL) checks the following documents of the client:I. Tax Payment Certificate.II. Stock Report.III. Trade License (renewal).IV. VAT certificateV. Liability statement from different parties.VI. Receivable from different clients.VII. Other assets statement.VIII. Aungykar Nama.IX. Ghosona Potra.X. Three (03) years net income & business transactions.XI. Performance report with the bank.XII. Account Statement Form of the bank.XIII. Valuation Certificatea. Particulars of the Proposal.b. Particulars of the Mortgagor.c. Particulars of the Properties.XIV. Outstanding liability position of the bank.XV. CIB (Credit Information Bureau) Report.

(6) Disbursement stageAt this stage, bank decides to pay out money. Here, the client gets his/her desired fund or goods. It is to be noted that before disbursement a site plan showing the exact location of each mortgage property needs to be physically verified.

(7) Monitoring & Recovery stageAt this final stage of investment processing of the Islami Bank Bangladesh Limited (IBBL), bank will contact with the client continually, for example- bank can obtain monthly stock report from the client in case of micro investment. Here, the bank will keep his eye on over the investment taker. If needed, bank will physically verify the clients operations. Also if bank feels that anything is going wrong then it tries to recover its investment fund from the client.

6. SPECIAL SCHEMES UNDER INVESTMENT MODES

Islami Bank Bangladesh Limited is offering various investment schemes, which are as follows: Household Durable Scheme Investment Scheme for Doctors Small Business Investment Scheme Housing Investment Scheme Real Estate Investment Program Transport Investment Program Car Investment Scheme Rural Development Scheme Agricultural Implements Investment Scheme Micro Industries Investment Scheme

6.1 Household Durable Scheme

In a developing country like Bangladesh people of middle and lower middle class especially service holders with limited income find it difficult to purchase articles like refrigerator, television, cot, almirah, wardrobe, sofa-set, pressure cooker, sewing machine etc. which arepart of modem and decent living. They cannot enhance the standard and quality of life to the desired level due to the constraint of their limited income.Islami Bank Bangladesh Limited has, therefore, introduced Household Durables Investment Scheme, which has already created great enthusiasm among the people and received tremendous response from them.

Objectives: To assist the service holders with limited income for purchasing household durables. Increase standard of living and quality of life of the fixed income group. Creating service-holders way of life happy and honest.

Household articles: Furniture like Almirah, Sufa set, wardrobe, etc. Electric & electrical equipment like television, refrigerator, gas cooker, air conditioner PC, washing machine, electric generator IPS, UPS, etc. Construction of dwelling house like corrugated iron sheet, cement, rod, wood etc. Motor cycle/By-cycle, Sewing machine etc. Power generator, motor pump/power pump etc. Gold ornaments. Tube-wells. Mobile Phone set. Medical /Engineering Equipment /Machinery. Educational equipment /machinery, books etc. Any other items considered by the bank suitable.

Beneficiaries:Interested permanent officials of the following organizations may apply forinvestment: Government Organizations. Semi-Government Organizations and Autonomous Bodies. Banks and Financial Institutions Armed Forces, BDR, Police and Ansars. Teachers of Universities, Government Colleges and Schools and Madrashas. Officers of International Financial & Relief Organization. Officers of the multinational companies. Officer of the local established and renowned public limited companies.Permanent Teachers & Officers of established & prominent private universities, Medical Colleges & University Colleges. House Owners. Doctors, Engineers, Architects, Chartered Accountants/FCMA and other important professionals. Investment and Deposit Clients of IBBL. Shopkeepers and businessman. Wage earners, Panel lawyers of IBBL, C&F Agents enlisted in IBBL. Graduate & Post-Graduate Students of Universities, Medical Colleges, Engineering Colleges, University Colleges for purchasing PC, Medical/Engineering equipment/machinery, Books etc. In case of Government, Semi-Government and Autonomous Organizations the age of the investment clients must be 25 and above with at least three years of service and he must have at least three years of service prior to his retirement. In case of private organizations, teachers of school, collage and madrashas the age of investment clients must be in between 30-50, with at least five years of service and he must have five years of confirm service prior to his retirement in the same organization. In case of others except service holders the age limit must be within 27-60 years. In case of students the minimum age must be 18 years and maximum 25 years.

Ceiling of Investment AmountFor doctors, Engineers, Architects, Chartered Accountants, FCMAs the Ceiling ofthe investment of the Bank will be - For all metropolitan City: Maximum Tk. 3,00,000.00 District& Municipalities: Maximum Tk. 2,00,000.00 Other Municipal Areas: Maximum Tk. 1,00,000.00 For depositors of Mudaraba Term Deposit & Mudaraba Savings A/C Maximum Tk. 2,00,000 by lien theyre A/Cs. For others: Tk. 1,00,000.00 NCOs of Bangladesh Armed Forces, Teachers of Primary Schools, PrivateSchool & Colleges and other professionals; Maximum Tk. 35,000.00 For students: Maximum Tk. 40,000 and for personnel of IBBL: Maximum Tk. 75,000

Maturity of investment Maximum 2 years for beneficiaries except bank's personnel Maximum 3 years for Bank's personnel.

Mode of Investment: BaiMuajjal

Equity Minimum 25% of the total value of the articles. The client shall have to deposit the amount of equity in his Mudaraba Savings /Investment Account with the concerned branch before the disbursement of investment. Minimum 10% of the total value of the articles for Bank's personnel.

Guarantors For beneficiaries except Bank's personnel, there should have two guarantors, one may be the Boss /colleague in the same level or upper level and another guarantor may be husband /wives parents, brothers etc. For Bank's personnel, no needs of guarantor.

Charges: For beneficiaries except Bank's personnel, charges are included as-Profit Charge13.5%

Supervising4.00%

Risk Charges2.00%

Total19.5%

For Bank's personnel, profit charge is 11 % only.

Disbursement After sanction of investment and deposit of required equity by the client, the Branch shall supply to the concerned investment client the desired articles within seven days by procuring them by way of pay-order/cheque/draft etc. favoring the supplier. For ensuring the ownership of the Bank over the goods, all papers and documents related to the procurement of the goods shall remain in the name of the Bank and Bank's sticker shall remain affixed over the same. The ownership shall be transferred in favor of the client after full adjustment of the dues to the Bank.

Mode of Recovery The Bank's investments and profit thereon shall be recovered in 24 monthly installment within a period of 2 (two) years. The monthly installment shall be payable by the first week of every month. The first installment 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:a) On request of the employee, the employers shall product the monthly installment from the salary and remit the amount to the Bank, in this connection; the client shall have to furnish a letter of consent from the employer.b) Before the delivery of goods, the client shall deposit to the Bank 24 post-dated cheques giving specific dates against each month installment. The cheques shall be presented to the concerned bank on due dates for encashment and adjustment of proceeds towards repayment of installment.SecurityThe investment client shall execute/provide the following documents in order to secure the investment. All required charge documents as per rules of the Bank. A written undertaking to the effect that the monthly installments shall be paid regularly. Personal guarantee of an official of the same rank or of superior rank. The guarantee shall have to be duly authenticated by the competent authority of the concerned organization. Personal guarantee of another person, preferably family member.Procedure for ApplicationInterested clients shall apply in prescribed form to the concerned Branch. The application shall have to be duly recommended by the Divisional Chief of the organization where the applicant serves. Form and booklet outlining the rules and procedures of the Scheme may be obtained from the selected Branches of the Bank on payment of Tk. 25.00 only.

Supervision of InvestmentUnder this Scheme, the Bank, at the initial stage, has engaged M/s. Anudip Services Private Ltd., Ibne Sina Group Investment Company Ltd., Faisal Investment Foundation and Crescent Consultants on commission basis for selection of client, disbursement and recovery of investment and for overall supervision of the Scheme. The concerned investment client shall pay the commission of the supervising agency at the rate of 2% per annum over the investment.

Risk FundA risk fund shall be created under this Scheme by charging the investment account @ 2% at a time against total investment at the rate of 1% per annum for 2 years. In case of any genuine damage or the concerned client totally incapable to the Bank, then the amount shall be covered or adjusted from the risk fund.

Other Terms & Conditions The concerned Branch of the bank shall take possession of the goods supplied to the client in case of his failure to repay 3 (three) installments consecutively. The client shall bear all necessary expenses relating to license, registration, insurance etc. of the goods supplied. The client shall bear cost of all maintenance, repair and preservation. The client shall use and handle the goods with utmost care and he will be liable to pay for any damage of the articles in his possession due to his negligence, carele