Modern Investment Approaches of Commercial Banks

Subject: Banking | Topics: Assignment

Introduction

The banking sector is one of the highly regulated sectors in our country. It is governed by the
rules and regulation of central Bank of the country, Bangladesh Bank and security and exchange
Commission. Banking system occupies an important place in a nation’s economy. A banking
institution is indispensable in a modern society. It plays a pivotal role in the economic
development of a country and forms the core of the money market in an advance country.

Islami bank Bangladesh limited is a specialized financial institution in South East Asia performs
most of the standard banking service and investment activities on the basis of profit-loss sharing
system conforming to the principles of Islamic shariah. The bank participates in financing long-
term projects on the basis of profit loss sharing instead of granting credit facilities with interest.

Carrier in banking has become very Lucrative over the last few years considering the work
environment and remuneration package. I choose IBBL It has a good reputation in the banking
community.

My Project Report specially based on Islami Bank Bangladesh Limited and I want to focus
Assessment of Modern Investment Approaches of Commercial Banks: A Case Study of Islami
Bank Bangladesh Limited.

History behind the study

For Project Report each student has to prepare a report on his or her choice. According to this
requirement, I have already completed my Project Report the Assessment of Modern Investment
Approaches of Commercial Banks: A Case Study of Islami Bank Bangladesh Limited. Because I
am a muslim I should know the Islamic Banking system, On the basis of my practical experience
as well as theoretical knowledge, I have completed the report regarding Assessment of Modern
Investment Approaches of Commercial Banks: A Case Study of Islami Bank Bangladesh
Limited. The main focus of my study is to analyze the modern investment of Islami Bank
Bangladesh Limited. Islami Bank does not lend money of issue securities with fixed interest.

Objectives of the study

The main objective of the study is to gather practical knowledge regarding modern investment of
Islami Bank Bangladesh Limited. This practical orientation gives us a chance to coordinate out
theoretical knowledge with the practical experience. The following are the specific objectives:

 To find out the overall pictures of investments of Islami Bank Bangladesh Limited.
 To assessment of modern investment approaches of commercial banks of IBBL.
 To identify the problems related to investment faced by Islami Bank Bangladesh Limited.
 To identify strength and weakness of investment in overall Banking System.
  To know the Shariah Based Investment opportunity in future.

Rationale of the Study

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 Foreign Exchange banking system. So I have
decided to study on the topic Assessment of Modern Investment Approaches of Commercial
Banks: A Case Study of Islami Bank Bangladesh Limited. Because the Project 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 BBA degree. This also
provides an opportunity to the students to minimize the gap between theoretical and practical
knowledge. That is way I have prepared this report.

Methodology of the Study

For smooth and accurate study everyone have to follow some rules & regulation. The study
impute were collected from two sources.

Primary Sources.

 Practical desk work

 Direct Observations
 Face to face conversation with the officer.

Secondary sources

 Annual report of IBBL

 Brushers
 Various publications on Bank
 Websites
 Different circulars sent by Head Office and Bangladesh Bank

Time Schedule of the report

Time schedule for dissertation work has been set up by supervisor form June 25, 2012 to
September 26, 2012.

For Data collection : 20 days

Data Analysis : 25 days

Visiting at the IBBL : 25 days

Clarification : 05 days
Report preparing : 10 days

Printing & Binding : 05 days

Total : 90 days

Limitations of the Study

There were some problems while I conducting the orientation A wholehearted effort was applied
to conduct the wholehearted effort, there exit some limitations. This acted as a barrier to conduct
the program. The limitations were….

 Sometimes I was assigned to do some official jobs out of my office. This situation has
created a lot of problems to understand why a specific function is being performed.
 Lack of experience.
 Lack of in depth knowledge and analytical ability for writing such report.
 All the branches of the sample bank were not physically visited.
 All the concerned personal of the bank have not been interviewed.
 Two month is not enough for preparing these types of report.
 Investment Manual is not available for all individuals.
 Learning all the Banking functions about Investment within just two month is not
possible.
 Another limitation of this report is Bank’s policy of not disclosing some data and
information for obvious reason, which could be very much useful.

Introduction

Banking plays an important role in the economy of any country. In Bangladesh Muslim
constituted more than 92% of its population. These people possess strong faith on Allah and they
want to lead their lives as per the constructions given in the holy Quran and the way shown by
the prophet Hazrat Muhammad (Sm). But no Islamic banking system was developed here up to
1983 The Traditional banking is fully based on interest it is commonly meant as commercial
banks. But interest is absolutely prohibited by Islam. As a result the people of Bangladesh have
been experiencing such a non-Islamic and prohibited banking system against their normal values
and faith.

The present world especially the third world is affected by unemployment socioeconomic
injustice inflation, inequitable distribution of income and wealth etc. The main aim of traditional
banking is to earn profit by borrowing and lending money in exchange of interest. As a result
there is an unfair competition among the bankers and among the customers.

Under conventional framework a bank borrows to lend and it mobilizes savings/deposits by

borrowing from savers and lends those deposits to productive interest on deposits and advances
respectively. The banks generally maintain a difference is known as interest-spread which is the
main income of an interest-based bank. In the Islamic banking system the bank receives no
interest. In this case IB receives its entire deposits from the investment of the clients on the basis
of profit-sharing places it to the actual entrepreneurs on the basis of the profit sharing. So, it is
clear that in case of the traditional banking systems, a fixed percentage of interest, irrespective of
income earned is paid to the depositors. The depositors of IB are never deprived of excess
income, which the bank may make at the end of year. Not only has this traditional bank given
fixed interest rate even when they incur operational loss. The critics of Islamic banking system
are of the opinion that both are found same in terms of deposits mobilization and advances
investment.

Banking functions of IBBL is an important aspect in our economy as it has broken the line of
interest based traditional banking system through the introduction Islamic Shariah based
banking. Since its commencement in 1983, it has already gained a good reputation in customers
as well as the masses of people of Bangladesh. Islamic Banking is especially important in the
world countries, which are characterized by unemployment, inequitable distribution of income
and wealth, etc. But there are so many constraints in our country in functioning the Islamic
banking activities. This paper is an attempt to assessment the Modern finance of Islamic Bank
Bangladesh Ltd. (IBBL) in terms of productivity and effectiveness. Since it is difficult to
measure the productivity of a bank, especially the interest-free IBBL, as it does not any visible
product. Some specific indicators have been selected for the purpose of measurement of
productivity.

Bangladesh is one of the largest Muslim countries in the world. The people of this country are
deeply committed to Islamic way of life as enshrined in the holy Qur’an and the Sunnah.
Naturally, it remains a deep cru in their hearts to fashion and design their economic lives in
accordance with the precepts of Islam. The establishment of Islami Bank Bangladesh Limited on
March 13, 1983, is the true reflection of this inner urge of its people, which started functioning
with erect from March 30, 1983. This bank is the first of its kind in South-East Asia. It is
committed to conduct all banking and investment activities on the basis of interest fee profit-loss
sharing system. In doing so, it has unveiled a new horizon and ushered in a new silver lining of
hope towards materializing a long cherished dream of the people of Bangladesh for doing their
banking transactions in line with what is prescribed by Islam. With the active co-operation and
participation of Islamic development bank (IDB) and some other Islamic banks, financial
institutions, government bodies and eminent personalities of the Middle East and the gulf
countries, Islami Bank Bangladesh Limited has by now earned the unique position of a leading
private commercial bank in Bangladesh.

Historical Background of Islami Bank Bangladesh Limited

Islami Bank Bangladesh Limited (IBBL) is considered 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.

Islami Bank Bangladesh Limited is a joint venture multinational Bank with 63.92% of equity
being contributed by the Islamic Development Bank and financial institutions like-Al-Rajhi
Company for Currency Exchange and Commerce, Saudi Arabia, Kuwait Finance House, Kuwait,
Jordan Islamic Bank, Jordan, Islamic Investment and Exchange Corporation, Qatar, Bahrain
Islamic Bank, Bahrain, Islamic Banking System International Holding S. A., Luxembourg,
Dubai Islamic Bank, Dubai, Public Institution for Social Security, Kuwait Ministry of Awqaf and
Islamic Affairs, Kuwait and Ministry of Justice, Department of Minors Affairs, Kuwait. In
addition, two eminent personalities of Saudi Arabia namely, Fouad Abdul Hameed Al-Khateeb
and Ahmed Salah Jamjoom are also the sponsors of IBBL. The total number of branches as of
December 2001 stood at 121. The authorized capital of the bank is Tk. 500 million and
subscribed capital is Tk. 160 million.

Mission

To establish Islami banking through the introduction of a welfare oriented banking system and
also ensure equity and justice in the field of all economic activities, achieve balance growth and
equitable development through diversified investment operations particularly in the priority
sectors and less developed areas of the country. To encourage socio-economic uplift and
financial services to the low-income community particularly in the rural areas.

Vision

Our vision is to always strive to achieve superior financial performance be, be considered a
leading Islamic by reputation and performance.

 Vision of IBBL is to always service 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 technologies, to ensure
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 the people, based upon accountability, transparency and
integrity in order to ensure stability of financial system.
 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
lead to higher employment.

Strategic Objectives

 To ensure customers’ satisfaction.

 To ensure welfare oriented banking.
 To ensure diversification of investment by sector, size, economic purpose &
geographical location and expand need based Retail and SME/Women entrepreneur
financing.
 To invest in the thrust and priority sectors of the economy.
 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 of both Shari’ah and regulatory
issues.
 To provide impeccable and progressively better customer services using changed
technologies.
  To train and develop human resources continuously and 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.
 To achieve global standard.
 To strengthen corporate culture.
 To ensure Corporate Social Responsibilities (CSR) through all activities.
 To promote using solar energy and green banking culture and ecological balancing.

Features of Islami Bank Bangladesh Limited

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

 All its activities are conducted on interest-free banking system according to Islamic
shariah.
 Establishment of participatory banking instead of banking on debtor-creditor relationship.
 Investment is made through different modes permitted under Islami shariah investment
income of the bank is shared with the Mudaraba depositors according to a ratio to ensure
a reasonable fair rate of return on their depositors.
 Its aims are to introduce a welfare oriented banking system and also establish equity and
justice in the field of economic activities.
 It extends socio economic and financial services to the poor, helpless and low income
group of the people for their economic up liftmen particularly in the rural areas.
 It plays a vital role in human resource development and employment generation
particularly for the unemployed youths.
 It extends co-operation to the poor, the helpless and the low income group for their
economic development.

Functions of Islami Bank Bangladesh Limited

The operation of Islamic bank Bangladesh limited can be divided into three major categories:
functions of Islami Bank Bangladesh Ltd. are as under:

General Banking

 Mobilization of deposits.
 Receipts and payment of cash.
 Handling transfer transaction.
 Operations of clearing house.
 Maintenance of accounts with Bangladesh Bank and other bank.
 Collection of cheque and bill.
 Issue and payment of D.D, T.T and P.O.
 Executing customers standing instructions.
 Maintenance of safe deposit lockers.
  Maintenance of internal accounts of the bank.

Foreign Exchange Business

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

 Opening letter of credit (LC) against commission for importing industrial, agricultural
and other permissible items under shariah and import policy.
 Opening letter of credit on the principle of Mudaraba sale, on the principle of Musharaka
sale and under wage earner scheme.
 Handing of export/import document.
 Negotiation of export/import document when discrepancy occurs.
 Financing in import under MPI (Mudaraba Post Import).
 Financing to export on profit or loss sharing.
 Handling inward and outward remittance.

Others activities

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

 Income generating scheme for the unemployed youth of the nation.

 Education scheme for assisting poor scholar student to case and help them to continue
their study.
 Health scheme for fulfillment of health needs of rural people.
 Islamic bank hospital was established to extend first hand modern and contemporary
medical service to the people on non profit business.
 Humanitarian assistance is being provided to the poor, families affected by river erosion
and for marriage of poor girls.

Islamic Banking in Bangladesh

Islamic banks show commendable strengths in their operation. Rate of growth of Islamic banking
in Bangladesh is remarkable by its market share in the economy. Contributions of IBs as a group
are shown in Figures below.

In 2011 market share of IBs in deposit, investment, import, export and remittance is recorded as
18.3%, 18.5%, 24.7%, 25.5% and 37.3%respectively. On the other hand, IB’s market share in
industry, trade, agriculture, construction and transport financing accounts as 19.1%, 22.4%,
9.1%, 19.2% and 24.6% respectively.

Network of IBBL

IBBL opened 15 new Branches during the year2011 raising total number of Branches to 266
from 251 of the previous year. The Bank plans to gradually open more branches covering
important commercial places both in urban and rural areas. For effective control, close
supervision and proper monitoring of the total operations of the branches as well as to assist
them in the development of business 12 Zonal offices are working all over the country. Now
more than 175,000 ATM cardholders of the bank can use IBBL’s own 100 ATMs & 1035 ATMs
of others’ across the country.

Out of total 266 Branches (including 30 SME/ Agriculture Branches), 82.23%, i.e., 219 are
Urban Branches and 17.67%, i.e., 47 are Rural Branches. IBBL has the highest number rural
branches among the first generation Private Banks.

Deposit

Without multidimensional and diversified products, any financial institution especially a Bank
can hardly prosper and compete with other banks effectively. With this idea, IBBL has so far
introduced 18 deposit products. Historical trend of the deposit mobilization shows a clear
direction of doubling its deposit base in every 5 (five) years of its operations during the last
decades.

Mobilization of Deposits

The year 2011 was another successful year of mobilization of Deposit. Total Deposit stood at
TK. 341,854 million as on 31st December 2011 as against Tk. 291,935 million of the preceding
year registering a growth of Tk. 49,919 million, i.e. 17% growth as compared to the percentage
of growth of Deposit in 2010 was 20%.

Bank of over 6 Millions Depositors

Total number of Depositors of IBBL increased to 60,04,731 as on 31st December 2011 from
49,39,502 of the preceding year, registering a number of 10,65,729 new Account Opening in the
year-2011 which is an increase of 22% as against increase of 11.04% as on 31.12.2010.

Weight age and Final Profit rates of Deposite Schemes

SI. No. Particulars of Deposits’ Weight age 2011 2010

1 Mudaraba hajj saving :
a)Above 10 years term 1.35 10.06 9.60
b)Up to 10 years term 1.30 9.69 9.19
2 Mudaraba waqf cash deposit account 1.35 10.06 9.60
3 Mudaraba special saving (pention)
scheme(MSS)
a)10 years term 1.30 9.69 9.19
b)5years term 1.10 8.20 7.80
4 Mudaraba muhor saving account
a)10 years term 1.30 9.69 9.19
b)5 years term 1.10 8.20 7.80
5 Mudaraba NRB saving bond
a)10 years term 1.35 10.06 9.60
b) 5 years term 1.25 9.32 8.85
6 Mudaraba perpetual bond 1.25 13.20 12.35
7 Mudaraba saving bond
a) 8 years term 1.25 10.00 8.85
b) 5 years term 1.10 9.10 7.85
8 Mudaraba monthly profit deposit schime
a) 5 years term 1.20 10.00 8.55
b) 3years term 1.00 9.00 8.21
9 Mudaraba term deposits
a)36 Months 1.00 9.00 8.21
b)24 Months 0.98 8.50 7.26
c)12 Months 0.96 8.00 6.80
d)06 Months 0.92 8.00 6.50
e)03Months 0.88 8.00 6.22
10 Mudaraba savings (including RDS) 0.75 5.60 5.30
11 Mudaraba SND 0.55 5.00 3.89
12 Mudaraba foreign currency deposit 0.75 1.53 1.79

Source: Annual Report 2011

Corporate information [as on 31st December 2011]

Financial Information:
Authorized Capital Tk. 20,000.00 Million ($244.87 Million)
paid-up Capital Tk. 10,007.71 Million ($122.53 Million)
Tk. 341,361.00 Million ($4,179.50 Million)
Deposits
(Provisional)
Investment Tk. 341,031.00 Million ($4,175.46Million)
(including Investment in Shares) (Provisional)
Foreign Exchange Business:
Tk. 301,207.00 Million ($3,687.87 Million)
Import
(Provisional)
Tk. 178,244.00 Million ($2,182.36 Million)
Export
(Provisional)
Tk. 236,607.00 Million ($2,896.93Million)
Remittance
(Provisional)
Branches:
Total number of Branches 236
Total number of SME Krishi
30
Branches
Total Branches 266
Number of AD Branches 43
Number of Shareholders 63,001 (30.06.2011)
Manpower 11,465
Organization:
Name of Chairman Prof. Abu Nasser Muhammad Abduz Zaher
Name of Managing Director Mohammad Abdul Mannan
Company Secretary Abu Reza Md. Yeahia (C. P.)
Name of CFO Mohammad Nesar Uddin, FCA, ACMA
Source: Annual Report 2011

Management

Islami Bank Bangladesh Ltd. is being managed by a Board of Directors comprising foreigners
and local. An Executive Committee is formed by the Board of Directors for efficient and smooth
operation of the Bank. Besides, a Management Committee looks after the affairs of the Bank.

Manpower position and other related information of IBBL

IBBL is always trying to play a vital role in employment sector and the last few years’
manpower position is as under:

Manpower position and other related information of IBBL

Category 2011 2010

Executive 347 316
Officer 6782 6092
Sub-Staff 1845 1627
Sub total 8974 8035
Rural development scheme 2024 1837
Others(temporary) 467 477
Total Manpower 11465 10349
Total branch 266 251
Per branch employee(including RDS & other) 43 41
Per branch employee(excluding RDS & other) 34 32
Deposit (in million taka) including RDS & other) 30 28.14
Investment(in million taka) including RDS & 30 28.22
other)

Information on Share & Bond

a. Authorized Capital Tk.20, 000,000,000/-

The Authorized Capital of the bank is Tk. 20,000,000,000/- divided into 2000000000 ordinary
shares of Tk.10/- each after the effect of split of IBBL shares from Tk.100/ to Tk.10/- each with
a market lot of one hundred shares instead of ten shares.
b. Paid-up Capital Tk.10007712000/-

The Paid-up Capital of the bank is Tk.10007712000/- divided into 1000771200 ordinary shares
of Tk.10/-each fully subscribed by:

Local Shareholders : 41.32%

Foreign Shareholders : 58.68%

c. Mudaraba Perpetual Bond

In November 2007 the bank issued Mudaraba Perpetual Bond for Tk.3000, 000,000/- through
private placement and repeat public offer divided into 3000000 bonds of Tk.1000/- each.

d. The price quotation of Shares of the Bank in the DSE and CSE for the Year 2011

Dhaka Stock Exchange Ltd. : Highest rate : Tk. 838.00 (before splitting)

Lowest rate : tk. 50.50 (after splitting)

Chittagong Stock Exchange Ltd. : Highest rate : Tk. 839.80 (before splitting)

Lowest rate : tk. 50.00 (after splitting)

e. The price quotation of MPBs of the bank in the DSE and CSE for the Year 2011

Dhaka Stock Exchange Ltd. : Highest rate : Tk. 1023.00 (before splitting)

Lowest rate : Tk. 860.00 (after splitting)

Chittagong Stock Exchange Ltd. : Highest rate : Tk. 1049.00 (before splitting)

Lowest rate : Tk. 833.00 (after splitting)

Financial Highlights

(IBBL Main Operation)

(in million Taka)

SI.No Particulars 2011 2010

1 Paid-up Capital 10007.71 7413.12
2 Total Capita(Equity) 33716.73 28400.03
3 Capital Surplus /deficit 7960.24 5287.58
4 Total Assets(Excluding contra) 389192.12 330586.12
5 Total Deposits 341853.67 291934.60
6 Total Investments (Excluding investment in 305840.56 263225.13
share / securities)
7 Total Contingent Liabilities and commitments 113420.93 113098.67
8 Investment Deposit Ratio 89.47% 90.17%
9 Preference of classified investment against total 2.71% 1.77%
general investments
10 Profit after Tax & Provision 4841.45 463.47
11 Amount of classified investment during current 3636.69 (407.77)
year
12 Provision kept against classified investments 3054.00 1840.00
13 Provision surplus/deficit – –
14 Cost of fund 8.86% 8.65%
15 Profit earning assets 295962.73 256354.66
16 Non-Profit earning assets 93229.39 74231.46
17 Return on investments 10.87% 10.08%
18 Return on assets 1.35% 1.47%
19 Income from investments 32308.90 25224.42
20 Earnings per share(taka) 4.84 4.46
21 Net income per share(taka) 4.84 4.46
22 Price earnings ratio(times) 11.27 13.29
23 Net asset value (NAV) 27800.21 23494.26
24 Net asset value (NAV) per share 27.78 23.48
25 Net operating cash flow per share 16.38 3.33
26 Dividend yield per share 5.87% 4.38%
27 Dividend payout ratio 66.15% 58.13%

Review of existing literature

Abdul Awwal Sarker (2007) says, Islamic banking as a new paradigm started in Bangladesh in
1983 with the establishment of the first Islamic bank ‘Islami Bank Bangladesh Limited’. After
that, 6 more banks have been established in the country to reach the outcome of this welfare
banking to the doorsteps of the people. In the past two decades, it has shown its great robustness
in achieving the goal of Islamic Shariah. Observing the success, many conventional banks have
been allured to open their own Islamic branches with the traditional ones. For a continued
expansion of the Islamic Banking system, however, a number of issues that pose serious
problems for Islamic banks will need to be carefully addressed. This paper discusses and makes
recommendations on the more pertinent of these issues, viz., the development of an Inter-Bank
Islamic Money Market, activation of Shariah Supervisory Boards, enactment of a full-fledged
Islamic Banking Act, development of New Financial Products in line with the Islamic Shariah,
and extension of investment in line with PLS framework, especially by constituting consortium
or syndication by the Islamic banks. The paper suggests that micro, small, and medium
enterprises (MSMEs) should get priority in the investment decisions of the Islamic banks. The
paper also observes that the performance of the Islamic banks could be further improved by
upgrading the quality of manpower by enhanced R&D spending and pro-poor investment
decisions.

Abdus Samad & M. Kabir Hassan (1998) says, The study evaluates intertemporal and
interbank performance of Islamic bank (Bank Islam Malaysia Berhad (BIMB)) in profitability,
liquidity, risk and solvency; and community involvement for the period 1984-1997. Financial
ratios are applied in measuring these performances. T-test and F-test are used in determining
their significance. The study found that BIMB is relatively more liquid and less risky compared
to a group of 8 conventional banks. Our analysis of the primary data identified reasons why the
supply of loans under profit sharing and joint venture profit sharing is not popular in Malaysia.
40% to 70% bankers surveyed indicated that lack of knowledgeable bankers in selecting,
evaluating and managing profitable project is a significant cause.

Abu Umar Faruq Ahmad & Professor A. B. Rafique Ahmad (2007) says, Microfinance
services are commonly viewed for those traditionally considered non bankable. Microfinance
tool can be adapted in every environment, based on the local needs and economic situation. In
Australia, Islamic microfinance enterprises that mostly rely on their shareholders’ savings proved
to be very successful in providing microfinance to their clientele. The study offers an
introduction to the emergence and development of Islamic microfinance in Australia. It also
studies the current realities of the Islamic financial system of Australia from the perspective of
the theories of modern financial intermediation and Islamic microfinance contracting. It explains
the key role of Islamic Microfinance Services Providers (IMSPs) in Australia in fulfilling the
microfinance needs of Muslim community. The study concludes that IMSPs in Australia can
proliferate in microfinance if they gradually advance towards undertaking more creative
microfinance techniques to suit the financial needs of their clientele to facilitate.

Ali & Sarkar (1995) says, Islamic banking has been defined in a number of ways. 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
state its commitment to the principle of Islamic Shariah and to the banning of the receipt and
payment of interest on any of its operations’.

Chiara Segrado (2005) says, In his famous book Wealth of Nations, “Adam Smith argued that
participation in religious sects could potentially convey two economic advantages to adherents
(Anderson 1988, Noland).The first could be seen as a reputation signal: while the poor might
look alike to potential employers, lenders, and customers, membership in a specific group could
convey a reduction in risk associated with the particular individual and ultimately improve the
efficient allocation of resources. Second, religious groups could also provide for extra-legal
means of establishing trust and sanctioning miscreants in intergroup transactions, again reducing
uncertainty and improving efficiency, especially where civil remedies for failure to uphold
contracts were weak ”

Hassan Rashid (2007) says, In the wake of meteoric growth of banking industry in Pakistan,
Islamic banking has captured 2% market share in only three-year period. To evaluate this
progress, attempt has been made to measure and analyze the performance of Islamic banks in
Pakistan during the 1999 and 2006.In this compendious analysis I have evaluated intertemporal
and interbank performance of Islamic bank (Meezan bank). To actualize this objective, analysis
has been made in four major areas of financial ratios i.e. profitability, liquidity, risk and solvency
and community development. This study finds out that not only Islamic banks are less profitable
than the conventional banks in Pakistan, but the basic modes of Islamic banking, Mudharabah
and Musharakah, are not popular in Pakistan.

Humayon A. Dar & John R. Presley (2002) says, An imbalance between management and
control rights is attributed as a major cause of lack of Profit Loss Sharing (PLS) in the practice of
Islamic finance. Given this dichotomy, the agency problem gets accentuated, which may put the
PLS at a disadvantage vis-à-vis other modes of financing. However, there is no theoretical reason
to believe that PLS is inherently inefficient. In certain circumstances, this in fact may serve some
important economic function.

Khan Md. Azizur Rahman (2005) says, Foreign Direct Investment is dramatically increasing in
this age of globalization. It has played important role for economic growth in this global process.
But, the distribution of FDI is uneven in all over the world. Some countries are ahead and some
are lag behind to attract foreign direct investment. The poorest countries are disappointing in
attracting FDI. First, the study attempts to describe the overall background, trends and definition
of FDI in recent years. Second, it describes the theoretical development and extensive literature
review to find out the appropriate variables to deter the Foreign Direct Investment from different
reputed studies, third, it focuses on the challenges, opportunities, investment and economic
environment associated with the inflow of FDI in Bangladesh. The study explores the
determining factors of FDI in Bangladesh. It investigates the significant determinants of a
particular country in Inflow of Foreign Direct Investment. At the end, it draws the conclusion to
promote the inflow of foreign direct investment with a view to take measures to strengthen the
positive impacts and reduce the negative impacts of FDI.

Molla, et al. (1988) says, The new system should not only eliminate interest-based transactions
but also introduce the concept of “Zakah” a contribution to the poor. The prohibition of Riba is
based on the arguments of social justice and equality.

M.Suyanto (2005) says, The study evaluates interbank performance of Bank Muamalat
Indonesia in profitability, liquidity, risk and solvency; and community involvement for the
period 2000 – 2004. Financial ratios are applied in measuring these performances. F-test is used
in determining their significance. The study found that BMI is relatively more profit and
commitment to community development, but less liquid compared to the conventional banks.
BMI does not show (statistically) any difference in risk performance with the conventional
banks.

Muhammad Shehzad Moin (2008) says, Islamic banking and finance in Pakistan started in
1977-78 with the elimination of interest in compliance with the Principles of Islamic Shari’ah in
Islamic banking practices. Since then, amendments in financial system to allow the issuance of
new interest-free instrument of corporate financing, promulgation of ordinance to permit the
establishment of Mudaraba companies and floatation of Mudaraba Certificates, constitution of
Commission for Transformation of Financial System (CTFS), and the establishments of Islamic
Banking Department by the State Bank of Pakistan are some of the key steps taken place by the
governments.

Professor Sudin Haron (2004) says, investigating the determinants of profitability has been one
of the more popular topics among researchers in banking studies. For the past three de-cades,
researchers have managed to examine and identify various factors that have a significant
influence on bank’s profitability. All previous profitability studies, however, have been of
conventional banks and until now there has been no study to determine the profitability of
Islamic banks. This study examines the effects of the factors that contribute towards the
profitability of Islamic banks. This study finds that internal factors such as liquidity, total
expenditures, funds in-vested in Islamic securities, and the percentage of the profit-sharing ratio
between the bank and the borrower of funds are highly correlated with the level of total income
received by the Islamic banks. Similar effects are found for external factors such as interest rates,
market share and size of the bank. Other determinants such as funds deposited into current ac-
counts, total capital and reserves, the percentage of profit-sharing between bank and depositors,
and money sup-ply also play a major role in influencing the profitability of Islamic banks.

Samad and Hassan (1999) says, Conventional banking where interest is an integral part of the
banking system, Islamic banking avoids interest in all bank transactions.

Suleman Aziz Lodhi & Rukhsana Kalim (2006) says, Islamic banking generally referred to as
interest free banking has been gaining popularity in the recent past. The main pillar of Islamic
finance is prohibition of interest. The banking system in Pakistan is undergoing a transition from
conventional model of banking to the new concept of Islamic banking, based on principles of
Islamic economics.

Talat Afza & Ali Rauf (2009) says, Extensive research has evaluated mutual fund
performance in different financial markets which led to mixed results (Soderlind et al., 2000;
Korkeamaki and Smythe, 2004), however, limited work has been done to evaluate Pakistani
mutual funds. The purpose of this study is to provide guidelines to the managers of open-ended
Pakistani mutual funds and benefit small investors by pointing out the significant variables
influencing the fund performance. An effort has been made to measure the fund

by using Sharpe ratio with the help of pooled time-series and cross-sectional data and focusing
on different fund attributes such as fund size, expenses, age, turnover, loads and liquidity. The
quarterly sample data are collected for all the open-ended mutual funds listed on Mutual Fund
Association of Pakistan (MUFAP), for the years 1999-2006. The results indicate that among
various funds attributes lagged return, liquidity and 12B-1 had significant impact on fund
performance.

Uhomoibhi Toni Aburime (2002) says, The broad aim of this paper is to introduce knowledge
of Islamic banking theories and practices to banking and finance scholars and practitioners in
Nigeria, as well as draw some useful insights on Islamic banking in Nigeria. Prohibition of
interest, low consumer lending, profit and loss sharing and high real sector investing are primary
characteristics of Islamic banks. Islamic banks operate the three conventional deposit accounts.
They also engage in investment financing, trade financing, lending, and other financial services.
Differences between Islamic and conventional banks lie in prohibition of interest, emphasis on
Islamic principles of morality, emphasis on collateral, certainty of deposits and returns, liquidity
risk and solvency risk; while similarities between Islamic and conventional banks lie in profit-
making objective and nature of banking services. Though there is a dearth of Islamic banks in
Nigeria, Islamic banking has become a fast growing concept. The emergence of full-fledged
Islamic banks in Nigeria should be expected in the near future.

Research Gap

The previous studies have made substantial contributions to the understanding to different of
IBBL. Till today no research work has been on the Assessment of Modern Investment
Approaches of Commercial Banks: A Case Study of Islami Bank Bangladesh Limited.

It is also observe that current professional researcher emphasizes on the level of modern
investment Approaches. But no such researcher work has been under taken from comparative
modes to highlighting the gap in the level of satisfaction of the customers of Islami Bank
Bangladesh Limited.

From the forgoing studies it may be concluded that no specific and on in depth research has so
far been conducted on modern investment approaches of Islami Bank in Bangladesh. The present
study is aimed that feeling the lacuna just described.

Investment Policy of Islami Bank Bangladesh Limited

Investment Policy of Islami Bank and non Islamic bank are fully different. The investment
policies of Islamic bank are-

 National priority sectors investment.

 Preference to industrial sectors.

 Ensure safety & security of investments.
 To give support to government denationalization industrial program.
 Investment to trade and commerce sector.

Investment Strategy of Islami Bank Bangladesh Limited

Investment Strategy of Islamic Bank and interest-based bank are contradictory. The investment
strategies of Islamic Bank are:

 To check exodus of investment clients.

 To induct new investment clients.
 To induct good investment clients of other Banks.
 To enhance existing limits of good investment clients.
 Extension of investment transport sector.
 Extension of investment to real Estate sector.
 Strengthening supervision, control and monitoring mechanism.
  Adaptation of modern technology.

Growth of Investment

The Investment of the Bank increased to Tk. 305,841 million as on 31.12.2011 from

Tk.263,225 million as on 31.12.2010 showing an increase of Tk. 42,616 million, i.e. 16% growth
as against 9.00% growth of investment of the Banking Sector.

Investment Modes of Islami Bank Bangladesh Limited

IBBL invests its money in several of the economy through different modes fewer than three
Mechanisms permitted by shariah and approved by the Bangladesh Bank. The modes of
investment are as follows:

(A) Bai-Mechanism:

 Bai-Murabaha
 Bai-Muazzal
 Bai-Salam
 Istishana

(B) Leasing Ijara, Hire Purchase (HP) Hire Purchase under sherkatul Melk (HPSM)

(C) Share Mechanism:

 Musaraka
 Mudaraba

Bai-Murabaha

Bai mudaraba may be defined as a contract beteen a buyer and a seller under which the 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 data in lump sum or by
installments. The marked up profit may be fixed in lump sum or in percentage of the cost price
of the goods.

 It is permissible for the client to offer an order to purchase by the bank particular goods
deciding its specification and committing him to buy 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 satisfy the promise or to indemnify the damages caised by breaking the
promise without excuse.
 It is also permissible to take cash/collateral security to guarantee the implementation of
the promise or indemnify the damages. Stock availability of goods is a basic condition for
singing a Bai-murabaha agreement; Therefore, The bank must purchase the goods as per
 specification of the client to acquire ownership of the same before signing the Bai-
Murabaha agreement with the Client.

Bai Muajjal

Bai Muajjal may be defined as a contract between a Buyer and a seller under which the seller
sells certain specific good.

(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 fixed period by fixed installments.
The seller may also sell the goods purchased by him as per order and specification of the Buyer.

In this Bank, Bai-Muajjal is treated as contract between the Bank and the Client under which the
Bank sells to the Client certain specified goods purchased as per order and specification of the
Client at an agreed payable within a fixed future date in lump sum or by fixed installments.

It is permissible to purchase by the Bank particular goods for the client to offer deciding its
specification and committing himself to buy the same 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
that is he is to either satisfy the promise or to identify 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.
 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.
 After purchase of goods the Bank must bear the risk of goods until those are actually
delivered to the client.
 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 a higher price than the purchase price to earn profit.
 The price once fixed as per agreement and deferred cannot be further increased.
 The Bank may sell the goods at once agreed price. This will include both the cost price
and the profit. Unlike Bai-Murabaha, The Bank may not disclose the cost price and the
profit mark-up separately to the client.

Bai-Salam

Bai-Salam may be defined as a contract between a Buyer and a Seller under which the Seller
sells in advance the certain commodity products permissible under Islamic Shariah and the law
of the land to the Buyer at an agreed price payable on execution of the said contract and the
commodity product are delivered as per specification, size, equality at a future time in a
particular place.

In other words Bai-Salam is a sale whereby the seller undertakes to supply some specific
Commodity Products to the buyer at a future time in exchange of an advanced price fully paid on
the spot. Here the price is paid in cash, but the delivery of the goods is deferred. Given below,
the important features of Bai-Salam.

 Bai-Salam is a mode of investment allowed by Islamic Shariah in which commodity

products can be sold without having the said commodity products either in existence or
physical/constructive 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 investment.
 Generally, Industrial and Agricultural products are purchased /sold in advance under Bai-
Salam mode of Investment to infuse finance so that production is not hindered due to
shortage of fund/cash.
 It is permissible to obtain collateral security from the seller client to secure the
investment from any hazards viz. non-supply of commodity products supply of low
quality commodity Product etc.
 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 of signing the Agreement.
 Bai-Salam on a particular commodity product or on a product of a particular field or farm
cannot be affected. For Agricultural products 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).

Istishna’a

Istishna’a is a contract between a manufacturer/seller and a buyer under which the

manufacturer/seller sells specific product after having manufactured at an agreed price payable in
advance or by installments within a fixed future date on the basis of the order placed by the
buyer. Given below, the important features of Istishna’a.

 Istisna’a is an exceptional mode of investment allowed by Islamic Shariah in which

products can be sold without having the same in existence. If the products are ready for
sale, Istisna’a is not allowed in Shariah. Then the sale may be done either in Bai-
Murabaha or Bai-Muajjal 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 instilments.
 It is a binding contract and no party is allowed to cancel the Istisna’a contract after the
price is paid and received in full or in part or the manufacturer starts the work.
 Istisna’a is specially practiced in Manufacturing and Industrial sectors. However, it can
be practiced in agricultural and constructions sectors also.
Sherkatul Melk

Shirkat 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 Shirkatul Melk contract.

Ijarah

The term Ijarah has been derived form the Arabic works. Means consideration, return, wages
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 consideration or rent from
the asset owned by the Hirer. It is a hire agreement under which the Hirer to a Hirer against fixed
rent or rentals hires out a certain asset for a specified period.

Sales

This is a sale contract between a buyer and a seller which the owners of certain goods or asset is
transferred by seller to the buyer against agreed upon price paid/to be paid by the buyer.

This is 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.

Thus, in Hire Purchase under Shirkatul Melk mode both the Bank and the Client supply equity in
equal or unequal proportion for purchase of an asset like land, building, machinery, transports
etc. purchase the asset with that loss in proportion to their respective equity, The share, part or
portion of the asset owned by the Bank is hired out to the Client partner for a fixed rent per unit
of time for a fixed period. Lastly the Bank sells and transfers the ownership of it’s
share/part/portion to the Client against payment of price fixed for that part either gradually part
by part or in lump sum within the hire period or after the expiry of the hire agreement. Given
below, important feature.

 In case of Hire Purchase under Shirkatul Melk transaction the asset/property involved is
jointly purchased by the Hiree (Bank) and the Hirer (Client) with specified equity
participation under a Shirkatul Melk Contract in which the amount of equity and share in
ownership of the asset of each partner (Hiree Bank & Hirer Client) are clearly mentioned.
 In Hire Purchase under Shirkatul Melk Agreement, the exact ownership of both the Hirer
(Bank) and Hirer (Client) must be recognized. However, if the partners agree and wish
that the asset purchased may be registered in the name of any third party, clearly
mentioning the same in the Hire purchase Shirkatul Melk Agreement, However, in IBBL,
no third party registration shall be allowed.
 The share/part of the purchased asset owned by the Hirer (Bank) is put at the
disposal/possession of the Hirer (Client) keeping the ownership with him (Bank) for a
fixed period under a hire agreement in which the amount of rent per unit of time and the
benefit for which rent to be p[aid 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 Hirer (Bnak) is entitled for the rentals.
 As the ownership of hired portion of the asset lies with the Hirer (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 Melk Agreement the Hirer (Bank) does not sell or
the Hirer (Client) does not purchase the asset but the Hirer (Bank) promise to sell the
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.
 The promise to transfer legal title by the Hirer and undertakings given by the Hirer to
purchase ownership of the Hired asset upon payment part by part as per stipulations are
effected only when it is actually done by a separate sale contract.
 As soon as any part of Hirer’s (Bank’s) ownership of the asset is transferred to the Hirer
(Client) that becomes the property of the Hirer and hirer contract for that share/ part and
entitlement for rent thereof lapses.
 In Hire Purchase under Shirkatul Melk Agreement, the Shirkatul Melk contract is
affected from the day the equity of both parties deposited and the asset is purchased and
continues upto the day on which the full title of Hirer (Bank) is transferred to the Hirer
(Client).

Mudaraba

Mudaraba is a partnership in profit whereby one party provides capital and the other party
provides skill and labor is called “hahib al-maal”. While the provider of skill and labor is called
“Mudarib”

So, Mudaraba may be defined as a contract of partnership where the Shahib al-maal provides
capital to the Mudarib for investing it in a commercial enterprise by applying his labour and
endeavor. Both the parties share the profit as per agreed upon ratio and the losses, if any, being
borne by the provider of funds i.e. Shahib al-maal except if it is due to breach of trust i.e.
misconduct, negligence or violation of the conditions agreed upon by the Mudarib. If there is any
loss incurred due to the reasons mentioned above, the Mudarib becomes liable for that.

Types of Mudaraba

Mudaraba Contracts may be divided into 2 types:

Restricted Mudaraba (Al Mudaraba Al Muqayyadah)

A restricted Mudaraba (Al Mudaraba Al Muqayyadah) is a contract in which the Shahib al-maal
impose any restriction on the actions of the Mudarib but not in a manner that would unduly
constrain the Mudarib in his operations. Shariah Rules for Mudaraba Rules relating to Mudaraba
Contract

There are two contract part+-ies in Mudaraba Contract

The provider of the capital i.e. Shahib al-maal and the Mudarib. Both parties should possess the
legal capacity to appoint agents and accept agency.

(A) The general principle is that a mudaraba contract is not binding, i.e. each of the contracting
parties may terminate it unilaterally except in two cases:

 When the Mudarib has already commenced the business, in which case the Mudaraba
contract becomes binding upon to the date actual or constructive liquidation.
 When the contracting parties agree to determine a duration for which the contract will
remain in operation. In this case, the contract cannot be terminated prior to the end of the
specified duration, except by mutual consent of the contracting parties.

(B) A Mudaraba contract is one of the trust based contracts, Therefore, the Mudarib invests
Mudaraba capital on trust basis in which case the Mudarib is not liable for losses except in case
of breach of trust, such as misconduct, negligence and breach of the terms of Mudaraba contract.
In committing any of the above, Mudarib becomes liable for the Mudaraba capital.

Musharaka

Musharaka may be defined as a contract of partnership between two or more individuals or

bodies in which all the partners contribute capital, participate in the management, share the profit
in proportion to their capital or as per pre-agreed ratio and bear the loss, if any, in proportion to
their capital/equity ratio.

In Islami Bank Bangladesh Limited (IBBL), the Bank provide capital in fixed proportions, take
part in the management of business and share the profit in proportion to their respective capital
ratio or at pre-agreed ratio and bear the loss, if any, in proportion to their respective
capital/equity ratio. Given below, important feature.

 The investment client will normally run manage the business.

 The bank shall take part in the policy and decision making s well as overseeing the
operations of the business of the client.
 As the investment client shall manage the enterprise, the bank may more share of profit to
him than that of his proportion capital contribution.
 1 loss. if am’, shall be shared on the basis of capital ratio.

Mode Wise Investment

Mode wise distribution of investment as on 31″ December 2011 vise-a-vise corresponding period
of last year is given below:

Mode 2011 2010

Bai-Murabaha 57.92% 55.52%
HPSM 29.12% 30.42%
Bai Muajjal 5.20% 4.71%
Bill purchased & Negotiation 0.91% 1.95%
Quard 1.83% 0.80%
Bai- Salam 1.15% 1.38%
Mudaraba 0.74% 0.57%
Musharaka 3.13% 4.65%
Total 100.00% 100.00%

Sector-wise Distribution of Investment

SI.No. Sector 2011 2010

1 Industrial 39.98% 43.30%
2 Commercial 12.50% 17.53%
3 Real Estate 5.55% 4.31%
4 Agriculture (including investment in 6.84% 5.41%
fertilizer & agriculture implements)
5 Transport 2.11% 1.74%
6 SME 33.02% 27.71%
Total 100.00% 100.00%

General Investments

The general Investment of the Bank increased to Tk. 305,841 million as on 31.12.2011
fromTk.263,225 million as on 31.12.2010 showing an increase of Tk. 42,616 million, i.e. 16%
growth as against 9.00% growth of investment of the Banking Sector. The salient feature of the
bank’s investment operation is that it extends microfinance facilities to its Rural Development
Scheme clients starting with Tk.10,000/- to Tk.0.3 million without collaterals and continue to
accommodates clients under Micro & SME sectors to corporate clients under industrial sectors
and Import-Export business with highest ceiling of Tk.3000 million under its single exposure
limit which is the highest limit foray Bank in the country with a view to mitigate the basic
necessities of human life in the sectors of Food, Cloth, Shelter, Medicare and Education.

Shari’ah Compliance in Islami Bank Bangladesh Limited

Alhamdulillah by th grace of Almighty Allah. IBBL is proceeding towards continuous progress

and success with due commitment for compliance of Islamic 5hari’ah Principles. Since very
inception of IBBL”Shari’ah Council was loomed to provide necessary counsel and guideline to
management for effective Shari’ah Compliance in the Bank.

During the per January-December. 2010, the Muragibs of Shari’ah Council had conducted
Shari’ah inspection at 176 branches During the period the doubtful income was detected by the
Muraqibs of the Shari’ah Council Secretariat to the tune of Tk. (1.08.14, 190/- out of total
inspected amount of Tk. 67.80/- and percentage of doubtful income is 8.97%

Two Years Performance at a Glance (IBBL Main Operation)

(in million Taka)

SI. No. Particulars 2010 2011
1 Authorized capital 10000.00 20000.00
2 Paid-up capital 7413.12 10007.71
3 Share money deposited/share premium 1.99 1.99
4 Resave fund 16081.14 17792.50
5 Retained earnings 2594.59 3202.47
6 Total equity 28400.03 33716.73
7 Equity/capital surplus/deficit 5287.58 7960.24
8 Deposits 291934.60 341853.67
9 Investment(including share & securities) 275493.94 322772.83
10 Investment(excluding share & securities) 263225.13 305840.56
11 Investment deposited ratio 90.17% 89.47%
12 Total Assets(including contra) 443684.79 502613.05
13 Total Assets(excluding contra) 330586.12 389192.12
14 Fixed assets 6748.44 7100.19
15 Total risk waited assets (raw) 256804.90 25756430
16 Crore capital-tier-1 18559.80 23101.24
17 Supplementary capital-tier-2 9840.20 10315.49
18 Regulatory capital-tier-1,2,3 28400.00 33716.73
19 Statutory capital 15348.08 20012.14
20 Capital adequacy ratio 11.06% 13.09%
21 Amount of classified investment 4655.63 8292.32
22 Classified investment to total investment 1.77 2.71
23 Provision against classified investment 1840.00 3054.00
24 General provision against unclassified 3443.00 3996.00
investment
25 General provision on off balance sheet items 930.00 1120.00
26 Investment income 24766.26 32019.53
27 Profit paid on deposit 14471.89 18401.22
28 Net investment income 10294.37 13618.31
29 Non-investment income 5362.64 6381.76
30 Total income 30128.90 38401.29
31 Administrative & other Exp. 7202.32 9652.76
32 Total expenditure 21674.20 28053.98
33 Net profit before tax 8454.71 10347.31
34 Net profit after tax 4463.47 4841.45
35 Payment to Govt.(income tax) 4108.98 5515.56
36 Import business 246281.00 301207.00
37 Export business 148421.00 178244.00
38 Remittance 214629.00 236607.00
39 Total foreign exchange business 609331.00 716058.00
40 No. of correspondent banks 295 313
 41 No. of foreign correspondents 919 935
42 No. of shareholders 58923 60550
43 No. of Employees 10349 11465
44 No. of branch *251 *266
45 Dividend Cash ….. 7%
Stock 35% 25%
46 Net asset value per share (taka) 23.48 27.78
47 Earnings per share 4.46 4.84
48 Market value per share(taka) 90.00 83.98
49 Gross profit ratio 51.97% 52.08%
50 Cost of fund(%) 8.65 8086
51 Cost of income ratio 0.72 0.73
52 Return on equity(%) 19.00 17.42
53 Return asset (%) 1047 1.35
54 Price earning ratio(times) 13.29 11.27
55 Price equity ratio(times) 2.52 1.96

N.B: The detonation of IBBL shares ha been changed from tk.100/-tk.10/- each with a market
lot of 100 shares effect from 04.12.2011

Findings of the Study

The findings of the study are as follows:

 The number of branches of IBBL is not sufficient during the demand of people. The
IBBL does not reach to the greater part of country. So they are deprived of the beauty and
welfare of Islamic Economic System.
 Dividend declaration of Islami Bank Bangladesh Limited have low percent dividend, as a
result share holder are not interest to invest in the share.
 According to the deposit holder of Islami Bank Bangladesh Limited can’t mobilize more
deposit from the depositor.
 Most of the people are not aware of the investment methods of Islami Bank Bangladesh
Limited, as a result the people are not interested to invest in IBBL.
 The Islami Bank Bangladesh Limited investment some time faces the default investment.
Because some of the client they can’t time to time payment of their loan, as a result the
Islami Bank Bangladesh Limited have faced fund scarcity problem.
 Some time the client can’t provide their legal document of securities when they receive
loan amount from Islami Bank Bangladesh Limited, as a result the Islami Bank
Bangladesh Limited fall in default risk.
 The Islami Bank Bangladesh Limited investment monitoring has some lacking. As for
that the Islami Bank Bangladesh Limited investment can’t reach in the people or business
sector.
 A common web portal is not developed to facilities client in providing tips regarding the
modes of investment.
  The Islami Bank Bangladesh Limited is not spread their operations in rural and under
developed area which will balance the regional development.
 The Islami Bank Bangladesh Limited is not increased their investment in construction
sector, the industry can create a strong manufacturer which is essential for economic
development.
 The Musharaka and Mudaraba investment is not available to all clients.
 Bangladesh is an agricultural based country but the amount of fund provided by the
selected banks is not up to the mark.
 Islami Bank Bangladesh Limited has no innovative investment product to attract the
entrepreneur is not sufficient.
 They have not sufficient Branches & Manpower according to their demand of client.
 Govt.’s special rule for Islami Banking system in our country is not sufficient.

Recommendations

It is quite difficult to give suggestion to improve the banking condition of Islami Bank
Bangladesh Limited. As we know that nothing is perfect, there is always a room for
improvement, so I have found during my internship can be made up taking into account the
following suggestions:

 Investment of the Islami Bank Bangladesh Limited portfolio should be diversified and
extended for long term financing under musharaka and Mudaraba.
 The Islami Bank Bangladesh Limited should be increased percentage of dividend
declaration than other bank dividend. Consequence, increasing the share holder invests to
purchase the share of Islami Bank Bangladesh Limited Islami Bank Bangladesh Limited.
 The Islami Bank Bangladesh Limited should mobilize deposit more and more from the
customer. Because Islami Bank Bangladesh Limited has a lot of customer forms other
bank in Bangladesh.
 The Islami Bank Bangladesh Limited should be increased awareness of investment
methods among the peoples.
 The Islami Bank Bangladesh Limited should investment in more profitable sector. The
consequence of this investment the return will be achieved of Islami Bank Bangladesh
Limited is to be more easily.
 The Islami Bank Bangladesh Limited should vary much careful and maintain the rules
and regulation for give loan to the Client, results this system reduces the default Client of
the Islami Bank Bangladesh Limited.
 The Islami Bank Bangladesh Limited should strictly maintained rules of the
documentation to the investment for the client.
 The Islami Bank Bangladesh Limited should be made easily formation for grantor system
to receiving loan from bank. If the grantor formation make easy than result the
investment increase more and gain more profit.
 A common web portal may be developed to facilities client in providing tips regarding
the modes of investment.
 The Islami Bank Bangladesh Limited should be spread their operation in rural and under
developed area which will balance the regional development.
  The Islami Bank Bangladesh Limited should be increased their investment in this sector
Strong construction industry.
 The Islami Bank Bangladesh Limited should available musharaka and Mudaraba
investment to all clients.
 The Islami Bank Bangladesh Limited should be increased their attention for the
Agriculture sector as it is the base of Bangladesh economy.
 Islami Bank Bangladesh Limited should advent innovative investment product for
attracting by the entrepreneur.

Conclusion

Banks play a very vital role in the economic development of the country. The popularity of
banks is increasing day by day which leads to increase competition as well. Currently 48
Scheduled Banks are operating in Bangladesh. All commercial banks are offering almost the
same products and services are different from each other. So people choose their Bank according
to their satisfaction and need. And they will prefer the bank of which service is easily accessible
and understandable. In Islamic Banking, system investment is going on with profit-loss sharing
system. In this system, no fluctuation comes between growth of economy as well as growth of
IBBL. In Islami banking system, it is possible to create balance between money supply and the
production of goods. On the other hand, conventional banking system creates inflationary
problem. In conventional banking system, investment does not ensure employment opportunity
besides Islamic banking system interest rate always fluctuates and events unrest in economy.
Besides, Islami bank always helps economic growth. In Islami banking system the collection of
invested money is easier that the conventional banking because Islami bank concerns with the
purpose of investment not with only the invested money. I also think that there is bright future
waiting for the Islami banking in Bangladesh and IBBL is in a position to go as a catalyst for this
development in the banking sector in Bangladesh. Most of the people of our country have a bad
impression about IBBL’s operations regarding indirect generation of interest; which means no
difference between investments of IBBL loan/credit/advance of conventional banks for this
reason. They are not too much interested with IBBL because majority of our people have proper
knowledge about the activities of Islami Banking as well as its investment Mechanism, They
don’t know mark up is accepted Islamic Shariah, The bank is committed to run its all activities as
per Islamic Shariah, IBBL Investments in this Important sector, ships of scrapping, rice,
Pharmaceutical etc, IBBL invest in profitable sector and operate others function through its study
progress and continuous success has by now earned the reputation of being one of the leading
private sector bank of the country.

From the findings of the study it may be concluded that the modern investment approaches of
Islami bank is white fulfill the customer satisfaction. But true that all investment approaches are
not fulfill and over all area. For the effective implementation of this majors. The joint effort of
banks authority and government is a must to improve of modern investment approaches of Islami
bank. Bibliography

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