Internship Report

11 Dec, 2017 Article, Case Study, Dissertation, Free Essays, Letter, Presentation, Thesis 0

Chapter No. 1 Introduction 1. 1Prelude Islam is the complete code of life. Islami Banking is the part of its economic financial system. Islamic Bank Bangladesh Ltd. (IBBL) has been playing a vital role without interest in the economic development of Bangladesh. This study aims to measures the growth & development of IBBL in respect measure the profit & profitability trend during the period of 1996-2007 i. e. 12 years. Net profit, total deposit, total investment, total assets, total fixed assets, total income, total expenditure, total equity, no. of employee & no. f branches were selected to measure the managerial effectiveness of IBBL during 1983-99. The IBBL offered to the client or encourage the investment which is suitable or profitable for the parties i. e bai –murabaha, bai-muajjal, bai-salam, bai-istisnah, hire purchase under shirkatul melk (HPSM), ijarah, mudaraba & musharaka. This study aims to implemented and being expanded to meet the specific and welfare oriented needs of the different segments of people of the country through the use of some investment strategy i. e. RDS, HDS, ISD, TIS, CIS, SBIS, MIIS, AIIS, HIS & REIP.

The IBBL had the increasing trend in deposit, advances, total investment, net profit, branches & employees etc. So how far the policies of expansion were taken with the profit & profitability trend of this bank is yet to be investigated. The bank has been successful in attaining any of the targets during the period under study. This is the bank, which does not fail to attain the level of profit & profitability trend continuously during 1983-2007, as a private bank i. e. IBBL helps to the Govt. in respect financial & social welfare services.

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On the basis of above facts, the IBBL must be careful for the financial, economical & social development of Bangladesh through the more improvement of their profit & profitability trend of IBBL in Bangladesh. This will be more effective for the development of Bangladesh. The traditional banking systems is fully based on interest banking systems indicating that operating efficiency of both banks & customers will revolve around fixed interest charges, only four nationalized commercial banks, twenty seven private commercial banks, thirteen foreign rivate banks & nine specialized commercial bank are functioning in Bangladesh including Islamic Bank Bangladesh Ltd.. [1] All the banks are directly involved to charge the interest according to their banking design. But only one Islamic Bank Bangladesh Ltd. is an exceptional bank who does not apply any interest due to purely Islamic concept. The main objective of traditional banking is to earn profit by lending & borrowing money in exchange of interest with the unfair competition among the various bankers & customers.

Before liberation, deposit collection was given priority over loan investment and ultimate aim was to earn profit through interest for the bank. But after liberation, the objectives of the banks were changed and diverted towards social & national development, increase of production, equitable distribution of wealth and income to ensure social justice and equality. The privatization of banks began in 1980s, then the permission was given to open new banks in the private sector. On the basis of the new change in policy, seven private commercial banks started their function including Islamic Bank Bangladesh Ltd. uring 1982-83. Bangladesh has been pursuing privatization policy with the change in Govt. policy since 1975. [2] Islamic Bank Bangladesh Ltd. was established on 30th March 1983 as a multinational banking company. This bank is the first interest free scheduled bank in South- East Asia. The establishment of this bank has ushered a new era in Bangladesh. This bank is committed to help the people in pursuits of earnings and legal investments as allowed by the Islamic principles. Muslims Traders all of its activities are running as per Islamic Shariah.

Some Religious, Industrialists and a few Religious & Social Institutions took initiative to establish this bank as per O. I. C. declaration. The Islamic Development Bank, along with some Foreign Institutions of Saudi Arabia, Kuwait, Bahrain, United Arab Emirate, Jordan also came forward to establish this bank. [3] IBBL has shown an increasing trend in Number of branches, no of employees, deposit, advances & investment etc. To measure the business growth, profitability concept is taken for the study. The open economic system cannot function efficiently without efficient banking system. 4] The term ‘productivity’ is generally used broadly to denote the ratio of output to any or all associated inputs in real terms. [5] Productivity is a convenient term for summarizing and expressing a relationship between output & input. [6] Lchiro Nakayama holds the view that productivity is the principle of realizing maximum effect with a minimum of effort. [7] Commercial Bank comprises a very important component of the banking system of Bangladesh. Commercial banks have a very important role to play in the economic development of Bangladesh like many other developing countries of the world.

The open economic system cannot function efficiently without efficient banking system. The dictionary meaning of the term ‘productivity’ is the rate / efficiency of work. 1 The term ‘productivity’ is generally used broadly to denote the ratio of output to any or all associated inputs in real terms. 2 productivity is a convenient term for summarizing and expressing a relationship between output & input. 3 Lchiro Nakayama holds the view that profitability & productivity are the principles of realizing maximum effect with a minimum. 4 Bangladesh’s financial system is smaller and less developed than in most countries in South and East Asia.

Despite recent modest gains in financial depth, the system remains shallow. The sector’s contribution to GDP has remained static at two percent for several years. Although major policy reforms have been under taken during the past few years, including deregulation of interest rates, strengthening of standard of loan classification and provisioning, and elimination of Bangladesh Bank’s control over most financial transactions, the financial sector continues under developed and inefficient and poor financial later mediation presents a significant disincentive to faster economic growth. The banking sector is the main force which keep healthy atmosphere for moving forward the wheels of production, trade and consumption by giving required bank credits in the development process. 2 The banking system as well as public commercial bank is an important force in the development process of Bangladesh which keep healthy atmosphere for moving forward the wheels of economic development by supplied bank credit. Now, the popular notion is that our banking sector is facing serious problems due to non-performing loan. Especially the public commercial banking sector is suffering of bank loan default problem.

Consequently, the most of the public banks are losing their income as well as growth trend. In many recent discussions and news items, many bankers researches, planners and reporters argue that the non-performing loan is increasing because most of the bank borrowers have captured the enter banking sector of Bangladesh directly and indirectly with bad intention and Before liberation deposit collection was given priority over loan & investment for banks but after liberation the aims of the banks were changed and diverted towards national development increase of production, equitable distribution of wealth and income to ensure the profit.

The privatization of banks concept was made in 1980s then the permission was given to open new bank in the private sector. On the basis of permission, seven private commercial banks (PCBs) were stared their functions including Islamic Bank Bangladesh Ltd. during 1982-83. The Islamic Bank Bangladesh Ltd. was established on 30th March 1983 as an Multinationnal Banking Company. This bank is the first interest free bank in South-East Asia. This was newly concept of bank in Bangladesh. This bank is committed to help people in Halal (legal) earnings & Halal investments.

All of its activities are running as per islamic shariah. Some religious Muslims, Traders, Industrialist, few religious Persons & Social Institutions took initiative to establish this bank as per OIC. Declaration. The Islamic development bank, some Foreign Institutions of Soudiarabia, Kuwait, Bahrain, United Arab Emirate, Jondan also come forward to establish this bank. 1 The IBBL has the increasing trend in net profit, total deposit, total investment, total assets, total fixed assets, total income, total expenditure, total equity, employee & branches etc.

Not only that IBBL is undertaking various programs to disburse credit among the urban & rural people in Bangladesh for the development of Bangladesh. With gradual growth & expansion of branches and manpower to keep up with increasing need to financial activities is the urban & rural sector. It is the great importance to have a clear concept about the managerial effectiveness of IBBL in Bangladesh. [8] The open economic system can not function efficiently without efficient banking system. The IBBL was established on 1983.

From the very inception of starting point of view IBBL functions in Bangladesh with the special activities. The bank is purely Islamic oriented. So to measure the business growth & productivity, this study is planned for 17 years i. e. 1983-99. The growth & development of IBBL was highly satisfactory during 1984-99 except 1993. Special care should be given to continue & increase profit of IBBL through proper distribution of profit, cost minimization, remodeling on funds, rearrange the deposit & investment ratio, better relationship with clients, decentralization of ower & credit the better investment climate etc. for the greater interest of Bangladesh. ) The banking sector is the main force which keeps healthy atmosphere for moving forward the wheels of production, trade and consumption by giving required bank credits in the development process. Compared with other banks, the Public Sector Commercial Banks being such an important force in the development process of Bangladesh. Recently, this sector faces serious crisis of the huge amounts of non-performing loan which hamper the growth trend and crush the backbone of our economy.

The popular notion is that the main cause of this bad situation is borrowers’ repayment tendency, huge amount of government loan, corruption in banking sector and other socio-economic problems. So, this study is a modest attempt to find out the increasing default problem of bank loan & its effect on public sector commercial bank’s growth as well as our socio-economic condition with some recommendations. ) 1. 2Shariah Council of IBBL

The Shariah council of the bank plays a very important role in framing and exerting policy for strict adherence of Shariah Principles in the bank. The Council is represented by 14 members consisting of prominent Ulama having adequate knowledge in Fiqhul Moamalat, Renowned lawyers and eminent economists to advice and guide on the implementation and compliance of Shariah principles in all activities of the bank particularly on the modes of investment. The Council of the bank is governed by its bye-laws and enjoys a special status in the bank.

The representatives of the council attend all formal and informal meetings of the bank, such as the meetings of Board of Directors, Executive committee, audit committee, management committee and other relevant committees and manager’s conference to give opinions and oversee of the bank from the view point of Shariah. Member secretary of the council or his representative is one of the members of academic council of IBTRA. The council also evaluates the performance of the officials in terms of Shariah compliance.

Eight meetings of Shariah Council, twenty one meetings of its sub-committee & three meetings of Fiqkah were held in 2007. Besides, members of the Shariah Council attended 28 meetings & seminars as discussants on the occasion of opening Zone & branches which was closing the discussion about the Sariah issued. As a part of major responsibilities of the council it also conducted Shariah inspection in 176 branches during 2007 to ensure that the Shariah Principles were implanted and complied. Shariah council also examined the financial statements of 2007 of the bank and submitted a separate report in this respect.

Chairman of the Shariah Councils – Sheikh (Moulana) Mohammad Qutubuddin, Vice President – Moulana Delawar Hussain Sayedee, Member Secretary – Prof. Dr. Abu Bakr Rafique, Member Additional Secretary – Principal Mohammad Serajul Islam & have 10 members at the present time. 1. 3Needs for the Study As an IBBL, special banking system is a separate bank, all the people in general have right to know how well their money is utilized through banking services by the special activities in the banking world in our country or foreign country.

The profit & profitability of IBBL depends on the degree, to which it’s financial health or managerial activities through the targets in all respects, which is fixed up for the particular period of time. Until now there has not been any comprehensive study on the profit & profitability trend of IBBL in Bangladesh. Vary few research have been conducted on this field of IBBL in Bangladesh. Keeping this in mind an important attempt has been taken in this study to measure the profit & profitability trend of IBBL in Bangladesh during 1996-2007. 1. Objectives of the Study Objective of the study acts as a bridge between the starting point and the goals of the study. To illustrate the objectives properly, presented into two parts: a. General objective of the report : The general objective of the report is to complete the internship. As per requirement of BBA program , a student need to work in a business organization for two months to acquire practical knowledge about real business operations of a company. b. Specific objective of the report: The specific of objectives of the study are as follows: 1.

To highlight the theoretical aspects on Islamic Banking and specially it’s Investment Mechanism during 1996-2008. 2. To know the growth & development of Net Profit, Total Income, Total deposit, Total Investment, Total Assets, Total Fixed Assets, Total Expenditure, Total Equity, No. of Employee, & No. of Branches of IBBL during 1996-2008. 3. To measure the productivity of IBBL during 1996-2008. 4. To focus the moods of Investment & its nature of IBBL during 1996-2008. 5. To identify the most influential factors for the investment portfolio of IBBL during 1996-2008. 6. To find out the major problems of the IBBL. . To suggest some possible measures to overcome the problems. 1. 5Limitation of the Study Under this study have some limitation which are given below: 1. Lack of sophisticated Knowledge: As a student in research field, I have no experience in data collection, processing, analyzing, interpreting and presenting. 2. Time lacks: There have no available time on my hand to properly complete this study program. So I can not able to conduct with all function within available time. 3. Unavailability and inefficiency to interpret secondary data: From the secondary sources I have not get available relevant data.

Moreover, I have no proper knowledge that to collect secondary data. 4. Every Company or Bank has some common strategy of secrecy. They didn’t want to provide available data, information, which are harmful for them. So I didn’t get sometimes essential data. 5. The employees were always busy on there tremendous workload. So they couldn’t extend there cooperation properly. 6. Finally 3 month is too short to know about the whole Banking system. Chapter No. 2 Review of Related Literature Some researchers were conducted on the field of conventional banking as well as Islamic banking.

A brief summary of the researcher relevant to the problem and prospects of the support the some assumption which are as follows: Chachi (1989) expressed in Ph. D thesis entitled “Islamic Banking” that Islam may lead to a more just and more beneficial way of development, through the western and pro-western economists believe that interest is a must for financial and economic development Shallah (1989) made a study on Islamic Banking in an interest based economy; A case study of Jordan “The dissertation examined the viability of Islamic Banks and financial institutions in an interest based economy which contradicts their ideals.

The study was particularly with the experience of Islamic Banking in Jordan and it provided an examination of the structure of the economic and financial system of Jordan”. Ahmed (1990) has showed in his Ph. D thesis entitled the contribution of Islamic Banking to economic Development. A case of the Sudan that the Islamic banks investment and in short term and (trade) finance and have done little to promote long-term (equity) finance. The researcher also found that these are different factors affecting this role such as the character and strength of demand for financing productive projects.

Ahsan (1988) stated in his articles Islamic and Modern Banking System “some principle and objectives of the Islamic and conventional economic system”. Ahmad[9] made an important study entitled “Lending Risk Analysis Implementation: Problem and Prospects”. He discussed objectives, problems & prospects of LRA. The objectives of LRA are to assist in bringing changes successfully to the existing lending policies, such as to develop methodology for analyzing lending risk, to improve the LRA for all types of decisions, to ensure the proper security and implement the whole mechanisms. LRA is the output of FSRP, for the sanction of loan Tk. 00 core and application of LRA techniques by the bank has been made compulsory except for BSB, BKB& RAKUB. LRA becomes effective when proper monitoring is done after sanctioning of any projects. Once the cash flow of the borrower is in consistent with the earlier period, no risk is there but in the reverse case, deterioration is found, and early detection is better for early rectification. He realized the major problems related to LRA. There is lack of homogenicly in LRA manual, lack of industry average, competitor’s data, etc. There are also problems in judging integrity & honesty of management.

Chapter No. 3 Methodology of the Study The approach adopted is basically analytical and interpretation in nature considering the objectives of the study and review of literature. Quantitative and descriptive method of analysis has been used to evaluate the data. I have prepared the report as a research paper. I mention here the different mechanism of investment system of IBBL. By the time of internship program I use my personal observation. Origin of the Report: This report is originated as the course requirement of BBA program, Department of Marketing of Stamford University Bangladesh.

As practical orientation is integral part of BBA program requirement, I was sent to the Islami Bank Bangladesh Limited , At first I report to IBTRA(Islami Bank Training and Research Academy) for internship training on Islamic Banking System from April 1 to April 10, then I sent to take the real life exposure of the activities of banking financial institutions at IDB Bhaban Branch from April 12 , 2009 to May 26, 2009. After that I submitted a report and presentation in IBTRA. Background of the Study: Any academic course of the study has a great value when it has practical application in the real life.

Only a lot of theoretical knowledge will be little important unless it is applicable in the practical life. So we need proper application of our knowledge to get some benefit from our theoretical knowledge to make it more fruitful when we engage ourselves in such field to make proper use of our theoretical knowledge in our practical life, only then we come to know about the benefit of the theoretical knowledge. Such an application is made possible through internship. When theoretical knowledge is obtained from a course of study it is only the half way of the subject matter.

Internship implies the full application of the methods and procedures through rich acquired knowledge of subject matter can be fruitfully applied in our daily life. Such a procedure of practical application is known as internship. The case study is titled “Overall Overview of Islami Bank Bangladesh”. As a student of BBA this study will be more significant in my practical life. I have worked for tow months at IDB Bhaban Branch of Islami Bank Bangladesh Limited to complete the internship program as an academic requirement. Scope of the Report: This report will cover an organizational overview of Islami Bank Bangladesh Limited.

It will give a wide view of the different stages of operational procedure of Islami Bank Bangladesh Limited, starting from the investment application to investment disbursement and the comparison between standard and existing credit appraisal system of a Bank. Then the report covers Foreign exchange operation and General Banking as an Islamic Bank. 4. 1Methods of Sampling Islami Bank Bangladesh Ltd. is selected as a sample of accidental or purposive sample. The researcher has selected the bank based in available of internship scope & data to prepare the internship report. No sampling method is used. . 2Sources of Data In preparing this report, both primary and secondary sources of information have been used. This study used mainly secondary sources of data. The only source of secondary data was the official record of the IBBL. We have also collected some published and unpublished research report, books, journals, articles to fill up the information gap. Both primary and secondary sources of information were being pursued with regards to the presentations of this study. Primary Sources of Data When data are collected through direct searching in the field then it is called primary source of data.

Data were collected from primary sources using the following techniques: • Asking the respective officers; • Personal observation. • Practical work. • Direct communication with the clients; • Exposure on different desk of the bank; Secondary Sources of Data The secondary data are collected from Internet, different article published in the journals and magazines. Secondary sources are: • Annual report of IBBL 2004-2008. • Conference report 2009. • Files and Folders. • Statement affairs. • Websites. • Relevant books, Newspaper, Journals etc. Periodicals published by the Islamic Bank Bangladesh Ltd. 2004-2008. • Different seminar papers on performance evaluation of service oriented business. • Different publications regarding banking functions during 2004-2008. • Main emphasis was given on secondary date which collected from the Economic Trends in Bangladesh for the period during 2004-2008. 4. 3Observation Method Observation method may be defined as the systematic watching of facts and events occurring in the field of study. The researcher has observed all the activities of general banking services.

Through this method, he has collected some data about general banking services. 4. 4Interview method Interview is a face to face situation where one person (the interviewer), asks a person being interviewed (the respondent), questions to obtain answer pertinent to research problems. To get the real information and data about general banking services, researcher asked some respondents and clients directly. 4. 5Period of the Study: The period for the study covers 13years i. e. 1996 to 2008. This is done to highlight the profit & profitability positions among different years. pic] Chapter No. 4 Theoretical & Conceptual Framework 3. 1Definition of Bank According to R. S. Sayers “A bank is an institution whose debts are commonly accepted in final settlement of other people’s debts” According to A. C. Day “A bank is an organization whose main function is moving for capital formation”. Definition of Islamic Bank: An Islamic Bank is a financial and social institution whose objectives and operations as well as principles and practices must conforms to the principles of Islamic Shariah, and which must avoid the use of interest in any of its operations.

The organization of Islamic Conference (OIC) defined an Islamic Bank as “a financial institution whose statutes, rules and procedures expressly state its commitment to the principles of Islamic Shariah and to the banning of the receipt and payment of interest on any of its operation. ” 3. 2Historical Background of Islamic Bank The history of Islamic Banking could be divide in two parts. First: When it still remained an idea, Second: When it become a realirty –by private intiative in some countries and by law in others[10]. There has always been a desire to establish financial institutions to operate as per the tents of

Islamic Shariah. The first attempt in this regard was made in Pakistan during 1950s as a pilot scheme, but unfortunately it didn’t succeed. It was followed by a more successful venture in the form of a local Bank in Egypt (Myt Gant Savings Bank, July, 1963). [11] In 1969 Islamic Bank was got up Malaysia through passing an Act in parliament which is being conducted successfully today. In 1970, King Faisal, The Government of K. S. A, called a meeting to moderate the banking of Muslim countries in accordance with the loss of Islamic Shariah.

In the light of this purpose, on 18th December 1973 the decision of setting up an international Islamic Bank was taken up in the finance ministry of O. I. C, which starts its work on 20th October 1975 in Jeddah. In 1977, Faisal Islamic bank in Sudan, Kuwait Finance Bank House in Kuwait, Faisal Islamic bank in Egypt and Jordan Islamic Bank in 1978 was founded. In 1977, International Association of Islamic bank was founded to create equality among the Islamic Banks of different countries. Islamic Bank Bangladesh Limited was incorporated on 13. 03. 1983 as a public Company with Limited liability under the companies Act, 1913.

The Bank obtained permission to commence business from 27. 03. 1983. Islamic Bank Ltd. Is the first interest free Bank in South-East Asia. The establishment of this Bank has ushered a new era in Bangladesh, the second largest Muslim country in the world. The bank is committed to help the people in Halal earnings and Halal investment. All of its activities are run as per Islamic Shariah. The Islamic Development Bank, some foreign financial institutions of Saudi Arabia, Kuwait, Bahrain, United Arab Emirate and Jordan also came forward to establish this bank. 3. 3Management of IBBL

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. The management and formulation of policy of the bank are vested in the board of directors, which is comprised of 14 local and 9 foreign directors by virtue of articles of association, A Bangladeshi director is to be elected as the chairman of the company. To assist them there is a high powered committee named exclusive committee.

There are six members in this committee nominated by the board of directors. Besides, these are another committee named management committee consisting of senior most executives of the Bank. There is also a Shariah council consisting of prominent Alims, Economists and Banker who acts as a supervisory body over the day to day activities of the bank from the point of view of Islamic Shariah. [12] 3. 4Capital and Reserve of IBBL The Authorized Capital of the Bank is Taka 10,000. 00 million and Paid-up capital is Taka 4,752. 00 million in 2008. The Paid-up Capital was Taka 67. 50 million in 1983.

The Reserve Fund of the Bank has been increasing steadily. on 31st December 1983, it was Taka 0. 36 million and stood at Taka 9,308. 49 million as on 31st December 2008 Taka 7,418. 05 million as on 31st December 2007 Taka 6,551. 23 million as on 31st December 2006 Taka 5,450. 94 million as on 31st December 2005 Taka 4,329. 92 million as on 31st December 2004 Taka 3,280. 80 million as on 31st December 2003 Taka 2,852. 07 million as on 31st December 2002 Taka 1,998. 04 million as on 31st December 2001 Taka 1,759. 65 million as on 31st December 2000 Taka 1,115. 61 million as on 31st December 1999

Taka 1,011. 84 million as on 31st December 1998 Taka 930. 17 million as on 31st December 1997 Taka 759. 39 million as on 31st December 1996 Taka 535. 08 million as on 31st December 1995 3. 5Objectives of IBBL The objective of Islamic Banking is not only to earn profit but to do good and bring welfare to the people. Islam upholds the concept that money, income and property belongs to Allah and this wealth is to be used for the goods of the society. The main object of the Islami Bank Bangladesh Limited (IBBL) had been to offer an interest free banking system in the financial market.

Apart from that, the bank started its operation in the country with a view to realizing the following objectives. • To offer interest-free banking system in the financial market. • To establish a partnership relationship with customers and to eliminate the idea of the debtor-creditor relationship of traditional banks. • To establish welfare oriented banking system. • To utilize mobilize savings towards productive sectors. • To investment on profit and risk sharing basis. • To invest to those business sectors those are found acceptable from Shariah point of view. To accept deposits on profit and loss sharing basis. • To create employment opportunities by investing savings towards prospective economic sectors. • To extend banking services towards the poor, helpless and low-income group of people in the society in order to uplift of their standard of living. • To contribute to establishment of a society by equitable distribution of wealth. • To establish justice in trade and commerce in the country. • To develop morals among the people and to establish the shariah in the field of trade and commerce. • To render services for the economic development of the nation. To contribute towards establishment of an Islamic Economic System in the Country. 3. 6Functions f IBBL The functions of Islami Bank Bangladesh Limited are as under: |[pi|To maintain all types of deposit accounts. | |c] | | | | | |[pi|To make investment. | |c] | | | | | |[pi|To conduct foreign exchange business. |c] | | | | | |[pi|To extend other banking services. | |c] | | | | | |[pi|To conduct social welfare activities through Islami Bank Foundation. | |c] | | 3. 9Islami Bank Bangladesh Limited at a Glance: IBBL at a glance presented as below: [13] 1. Company Name : Islami Bank Bangladesh limited 2.

Officer Grade I | |Asst. Officer Grade I | |Asst. Officer Grade I | |Asst. Officer Grade I| |Asst. Officer Grade | |II | |Asst. Officer Grade II| |Asst. Officer Grade II| |Asst. Officer Grade | |II | |Asst. Officer Grade | |III | |Asst. Officer Grade | |III | |Asst. Officer Grade | |III | |Asst. Officer Grade III| Organizational Hierarchy of IBBL [pic] 4. 7SOWTAnalysis STRENGTHS • Sound profitability growth and high asset quality. • Experienced Management. • Honest, sincere and dedicated employee competency. Wide market share and stable source of fund. • Largest network among PCBS. • High attention on recovery of overdue and classified investment and on pre-overdue situation. • Close monitoring on investment clients. • High attention on individual’s performance. • High attention on making quality investment and quick disposal of proposals. • All the officials/manpower are dedicated and honest to serve its own duty. • As a whole the human resources is our main capital/assets of the wing. • Business ethics of the wing is similar to the ethics and values of mass people of our country. WEAKNESS Traditional network system and lack of full-scale automation. • Lack of latest information system. • Lack of required ideas on modern investment products. • Poor marketing of investment products. • Lack of required information specially on SME. OPPORTUNITIES • Scope of market penetration through diversified investment products. • Increasing awareness of Islamic banking among the clients. • Scope to develop new committed entrepreneur. • Country wide branches having wide opportunities to access in different kinds of businesses. THREAT • Market pressure for lowering of lending rate. • Challenge of new entries. Challenges related to substitute organizations. • Entrepreneurship development. CHAPTER NO. 5 Investment Design of IBBL Islamic Bank Bangladesh Limited being an ideological banking organization is firmly committed to implement and materialize the economic and financial principles of Islam in the banking arena and thereby to do disparity and establish justice in the trade, commerce and industry and build socio-economic infrastructure, create opportunities for employment and income generation and poverty alleviation, contribute to the socio-economic enlistment and sustained economic growth of the country.

Investment operation of a Bank is of vital importance 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 Port-folio. 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. 5. 1Mission of Investment To establish Islami Banking through introduction of welfare oriented banking system.

To ensure equity and justice in the field of economic activities. To achieve balanced growth and equitable development through diversified investment operation particularly in the priority sector and less developed areas. To encourage socio economic up-liftment and provide financial services to the rural and low income community. 5. 2Vision of Investment To achieve superior financial performance and become a model of Shariah compliment Bank. To achieve leading position by virtue of performance and reputation. To established a modern banking technique and offer all types of financial services.

To ensure soundness, healthy and ethical financial system. To make an efficient organization with highly motivated and devoted professionals. 5. 3Salient Features The salient features of the investment policy are outlined below: Islami bank rotates its deployable fund to all sectors of the society to ensure equitable distribution of income. To ensure the resources and consequent reduce the chances for concentration of wealth in some few hands Islami bank allocates its fund, chooses the projects for finance considering the benefit of the society as a whole with a view to generate more employment.

Islami bank contribution towards economic development and prosperity with the principles of Shariah in consideration. Observation of the legal investment limit of the bank. Observation of legal investment limit per client. Optimum utilization of invest able fund. Profitability of the investment. Safety and security of the investment. Investment at minimum possible risk e. g. default risk and liquidity risk etc. Liquidity of investments. Preference to short-term investments . Preference to the investments for small amount/size. Satisfactory return on investments.

To take in view, the following points while considering an investment proposal: • Sector and sectoral performance. • Management of the company. • Location of the company. • Market: demand/supply gap, import/export, and consumption trend. • Past performance, if any. • Cash flow position. • Financial/internal rate of return. • Investment service coverage position. • Capability of the sponsors. • Infrastructural facilities in and around the proposed project. 5. 4Steps of Investment Operations In case of investment operation, Bank management follows some steps absolutely to avoid the forgery.

The steps are as follows— (A) Proposal Preparation (B) Sanctioning (C) Disbursement (D) Recovery 5. 5Proposal Preparation The investment officer prepares the proposal for a relevant investment-client and sends it to the authorized officer or executive to permit it. In this case, he has to take some documents from the relevant investment-client and. He collect various necessary information about the client. Most of the documents are as follows: (i)Appraisal Report prepared by Bank, F-167 B. (ii) Application of Client in his pad. (iii) Application of Client in Bank’s form, prepared by client, F-167 A. iv) Audit Reports(last three years) of the related enterprise by Audit Firm including the following information, Balance Sheet, Schedule of Fixed Assets, Schedule of Proprietor’s Capital & Fund A/C, Profit & Loss A/C, Trading A/C (v) Proprietor’s curriculum vitae with business experience in his pad. (vi) Schedule of movable properties of clients, prepared in his pad. (vii) Schedule of Fixed Assets of the client in his pad, prepared by the client. (viii) Schedule of Sundry Debtors in his pad, prepared by the client. (ix) Schedule of Sundry Creditors in his pad, prepared by the client. x) Statistical schedule of Income & Expenditure of last three years the related enterprise in his pad, prepared by the client. (xi) Schedule of all the enterprises which are related with the relative enterprise for business purpose, prepared by client in his pad. (xii) Schedule of owner’s Sales Center, prepared by client in his pad. (xiii) Schedule of warehouses and its capacity. (xiv) Schedule of associate enterprises, prepared by client in his pad. (xv) Schedule of investment in the business, prepared by client in his pad. (xvi) Certificate on other Bank’s investment to the relevant business(if any). xvii) Import Registration Certificate (if necessary), attested copy. (xviii) Tax Pay Certificate, attested copy. (xix) Trade License. (xx) VAT payment certificate. (xxi) Stock Report of Goods including goods securities A/C, prepared by client in his pad, authorized by inspecting officers and also Investment Officer, 2nd Officer & Manager. (xxii) Statements of various accounts of client and its partner concerns, prepared by Bank. (xxiii) Client’s L/C from branch manager of the Bank. (xxiv) Performance of partner concern’s L/C from other Bank (if any) by the branch manager of the related Bank. xxv) Property valuation certificate. (xxvi) Physical inspection certificate of properties offered for mortgage with authorized signature of Investment Officer, 2nd Officer and Manager. (xxvii) Memorandum and Articles of Association of client’s enterprise. (xxviii) Lending investment risk analysis, prepared by Bank in its form. All the above documents are signed by the client, attested by the gazetted officer (if any). After receiving these documents from the client the investment officer prepares the proposal and sends to the authorized officer or executive for sanctioning the investment.

Sanctioning In this step the executive or officer who is responsible for sanctioning the investment, permit to invest obeying the organization’s rules & regulations and considering the documentations of the relevant client. And he sends the sanctioning letter to the relevant investment officer for disbursement. Disbursement In this step the investment officer of the relevant branch of bank disburses the permitted investment. In this case IBBL does not give all the amount of investment; but gives it partially for bank’s controlling opportunities.

For this purpose the permitted investment is divided into some parts and the parts are given time to time in step by step by considering the paying conduct of the client. Here is the basic distinction between IBBL and Traditional Banks. In case of disbursement, the following charge documents are taken from the client for every part of investment of the total investment. Application of client in his own relevant enterprise’s pad. Quotation of goods must be verified including market price from supplier, accepted and signed by the authorized officer(s) of the Bank. 1. Bill from supplier (after sale). 2.

Pre-Audit Memo on Investment,F-215. 3. Form of goods sales,F-191. 4. Demand Promissory Note, CF-1. 5. Balance Confirmation Letter, CF-16. 6. Letter of Disbursement, CF-6. 7. Demand Promissory Note Delivery Letter, CF-3. 8. Schedule of purchase and sales of goods, F-190. 9. Letter of Hypothecation,CF-5. 10. Trust Receipt,CF-11. 11. Letter of Guarantee, CF-14. 12. Related Agreement Form. All the above charge documents are signed by the client, the Investment Officer, 2nd Officer and Manager. Recovery The Bank invests its fund to the Clients as a rule the Clients generally pay the respective amount to the Bank timely.

If the Client fails to pay the amount, the bank sends a notice three times to pay to the Bank. After the declaration of final notice, the Bank is bound to go to the legal action to recover its fund. In this case, the legal charge and fines must be brought by the Client Preferred Organizational Structure & Responsibilities The following charts represent the preferred management structure of the bank for its investment operation: Organogram of Branch’s Investment Department: | | |Branch Incumbent | | | Investment Committee | | | |Investment in Charge | |Relationship/ | |Marketing Dept. /Selection | |Investment | |Recovery Dept. /Selection | |Investment | |Administration Dept. /Selection | |Commercial Investment | |Documentation Officer | |Industrial Investment | |Disbursement Officer | |Custodian Officer | |SE. Consumer & Special| |Scheme | |Monitoring Officer | |Compliance Officer |

The Board of Directors of the Bank shall sanction the entire big Investment proposals beyond discretion power of the Executive Committee. |Investment | |Meshanism | Different Mechanism of Investment |Bai(Trading) | |Mechanism | |Ijara Mechanism | |Share Mechanism | 5. 6Different Modes of Investment Allah has permitted Bai (Buying and selling i. e trading) & prohibited Riba. Islamic Bank Bangladesh Limited in all its transactions restricts Riba and conducts its investment portfolio under the following three mechanisms. A)Bai-Mechanism 1. Bai-Murabaha Mode 2. Bai-Muajjal Mode 3. Bai-Salam Mode 4. Istishna’a Mode 5. Bai as Sarf Mode (B)Ijara Mechanism 1. Hire Purchase Under Shirkatul Melk 2. Ijara Mode (C)Share Mechanism 1. Mudaraba Mode 2. Musharaka Mode Now we analyze the investment mechanisms in IBBL including their Induction of Client, Application, Processing and Appraisal, Sanction, Documentation, Trading ( Purchase, Sale and Delivery of Goods) rules7 regulations etc. [16] (A) Bai-Machanism 1. Bai- Muajjal

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 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 Meaning The terms ” Bai ” and ” Muajjal ” have been derived from Arabic words ??? and ??? . The word ??? means purchase and sale and the word ??? eans a fixed time or a fixed period. ” Bai-Muajjal ” means sale for which payment is made at a future fixed date or within a fixed period. In short, it is a sale on Credit. Definition Bai-Muajjal may be defined as a contract between a Buyer and a Seller under which the Seller sells certain specific goods (permissible under Shariah and Law of the Country), to the Buyer at an agreed fixed price payable at a certain fixed future date in lump sum or within a fixed period by fixed installments. The seller may also sell the goods purchased by him as per order and specification of the Buyer.

Important Fetures • It is permissible for the Client to offer an order to purchase by the Bank particular goods deciding its specification and committing himself to buy the same from the Bank on Bai-Muajjal i. e. deferred payment sale at fixed price. • It is permissible to make the promise binding upon the Client to purchase from the Bank, that is, he is to either satisfy the promise or to indemnify the damages caused by breaking the promise without excuse. • It is permissible to take cash / collateral security to Guarantee the implementation of the promise or to indemnify the damages. 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 can not be further increased • The Bank may sell the goods at one agreed price which 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.

The following Accounting entries shall be passed at various stages of Bai-Muajjal Investment:- 1) While receiving Cash Security from the Client before purchasing the goods, the following entries shall be passed: Dr. Cash or Client’s Current A/C …….. M/s (Client) ………………………………….. Cr. Bai-Muajjal Investment A/c (Security Deposit) (Commercial/ Industrial/ Agricultural etc. A/C. M/s. …………………………. (Client) ……………. (Being the amount of Security Deposit realized from the Client against Deal No……….. Dated ……………………….

M/s. ……………………………. ) 2) Normally while purchasing any goods, the accounting system is that the Goods A/C or the Purchase Accounts should be debited which is also in consonance with Islami Shariah Principle. But, in order to avoid the risks of fraud & forgery and extra load of work, as a transitory arrangement and with the condition that until and unless the goods are actually delivered to the Client, he shall not be made liable for the debited amount, the present system of debiting the Investment Account mentioning the name of the Client may be allowed to continue.

While purchasing the goods by the Bank the following entries shall be passed: 2. 1)Dr. Bai-Muajjal Investment Account (Commercial/ Industrial/ Agricultural etc. ) Deal No…………………. Date ………………. for M/s. ……………………………….. Cr. Payment Order/ DD/ TT/ Current A/C (Favouring Seller/ Buying Agent of the Goods as per purchase contract with the Seller/ Buying Agent Deal No………………. . Dated …………………. for M/s. ……………………………… ) (Being the amount of purchase price of Bai-Muajjal goods ………. units @ Tk………. er unit under deal No……………….. dated ……………….. for M/s. ………………. ) 2. 2) Dr. Bai-Miujjal Investment Account (Commercial/Industrial/ Agricultural etc. ) for Remittance Commission/Transportation Cost/Transit insurance/ insurance Premium etc incurred against Deal No…………. dated ……………… for M/s. ……………….. in connection with purchase. Cr Remittance Commission / Cash or Payment Order for the Conveyance TA/DA/ Transportation Cost / Transit Insurance Premium / Godown Rent, Godown Insurance Godown Staff Salary, Agency Commission etc. if any, incurred by the Bank in connection with the purchase of goods and before delivery of the same to the Client under Bai-Muajjal Investment A/C. No………….. Deal No……………… Dated……………….. For M/s……………………………. 2. 3) In case the Bank fails to take delivery/ procure the goods from the Seller or Supplier of the goods and the Supplier paid back the purchase price of the goods paid to him in advance the following entries shall be passed: Dr. Cash / Supplier / Seller’s / Buying Agent’s A/C / P. O. Payable A/c,/ I. E.

Gen. A/c. / Balance with Other Bank A/C. No……………… of M/s………………………. Cr. Bai-Muajjal Investment A/C No. ……………………… Cr. Client’s Current Account No. …………… (Refund of cash security deposited by the Client earlier) (Being the purchase price refunded by the Producer/ Seller/ Suppliers/ Buying Agent). 3) After execution of Bai-Muajjal Agreement and delivery of the goods by the Bank to the Investment Client(s). 3. 1)Dr. Bai-Murabaha Investment A/C No………… Deal No…………… dated ………………… f the Client M/s………………….. (Being the profit amount on the goods payable by the Client). It may be noted that the total cost price, profit charges etc. shall be entered in the respective column in the Investment ledger). Cr. Profit Receivable A/C. (Bai-Muajjal Investment A/C No………………………….. Deal No………….. of M/s……………………. ) (Being the amount of Bank’s profit on the Bai-Muajjal Investment A/C No………. Deal No……………….. dated……………. of M/s. …………….. (Client)………………………….. 4) Storage, Insurance and Maintenance Cost, if any, incurred after sale of goods to the Client (Normally, the cost shall be paid by the Client from his own source):’ In case, the Client fails to Pay the same charges in Cash at the moment, the Bank will pay the same to the Debit of Investment A/C of the Client passing the following entries with the recourse to recover the same from the immediate next payment of the Client: Dr Bai-Muajjal Investment A/C No………….. Deal No……………….. dated …………….. or M/s……………………. Cr. Cash or Payment Order favouring the beneficiary Being the ……………… expense …………………. incurred in connection with the storage,Maintainance insurance of the goods after sale of the same to the Client with proper advice to the client) 5)Recovery / Reimbursement of the Expenses incurred by the Bank for maintenance of the Stocks after delivery to the Client: 5. 1)Dr. Cash /Current A/C of the Client. Cr. Bai-Muajjal Investment A/C No……………….. Deal No……………… Dated ……………………….. of M/s. ………………. (Being the amount recovered against expense such as Insurance Premium, Godown Staff Salary.

Godown Rent etc. incurred by the Bank for maintenance and storage of the stocks. It may be noted that any amount paid by the Client shall first be credited towards adjustment of these Charges). 5. 2)While Recovery / Payment are made by the Client for Adjustment of the Investment Account. Dr. Cash/ Current A/C of the Client. Cr. Bai-Muajjal Investment A/C No…………………… Deal No……… Dated ……………………… of M/s. ………………………………………. (Being the amount of principal and profit realized from the Client)

It may be noted here that any amount paid by the Client towards adjustment of his Investment A/C shall be credited proportionately towards principal and time apportioned profit amount of the Bank. 6) While transferring the proportionate profit from Profit Receivable A/C to the Investment Income A/C on the deal for each month. Dr. Profit Receivable A/C. Cr. Investment Income A/C. (Bai-Muajjal – Commercial/ Industrial/ Agricultural) (Being the amount of Proportionate profit for the month of ……….. year……….. ) 7) While allowing rebate for early adjustment of Banks dues: The following entries shall be passed:

Dr. Profit Receivable A/C/ Investment Income A/c (if excess amount of profit was transferred to Investment Income A/c. ) Cr. Bai-Muajjal Investment A/C No……………….. deal No. dated …………………… of M/s. ………………………………………. (Being the amount of rebate allowed for adjustment of the Investment A/C in lump sum but very nearest to amount to be arrived at the calculated rate of profit (R. R%). 8) At the time of filing Suit the following entries shall be passed for payment of the legal expenses. Dr. i) Suspense A/C : Court Fee i) Expenditure A/C: Legal Expenses Cr. Payment Order / Account of the Lawyer. (Being the amount paid to the Lawyer for Court fees and Lawyer’s Charges and other related expenses for filing suit). 9) While Recovery/ Deposit are made from / by the Client after filing suit, the following entries shall be passed. Dr. Cash/ Client’s Current A/C. Cr. Bai-Muajjal Investment A/C. (Being the amount paid/ deposited by the Investment Client after filing suit). 10) Other Expenses, if incurred after filing Suit: 10. 1) Other expenses in respect of maintenance, storage and insurance etc. if any, incurred by the Bank after filing suit against the Client, the following entries shall be passed: Dr. i) Suspense A/C : Insurance Premium : Other Exp. (e. g. Advertisement Cost, Auction Exp. etc. ) ii) Expenditure A/C: Legal Expenses. Cr. Cash/ Payment Order A/C Favoring the Beneficiary. (Being the amount of expenses incurred for insuring/ maintaining storing the Stock /Other Securities of the Bai-Muajjal Client). 10. 2) After obtaining decree from the court for the other expenses incurred above, the Suspense entries shall be reversed as follows: Dr. Bai-Muajjal Investment A/C. Cr. Suspense A/C: Insurance Premium Other Expenditure Cr. Other Income : Legal Exp. Allowed by the Court. (Being the amount of Insurance expenses/ other expenses/ Legal Expenses etc. allowed by the court and recovered from Bai-Muajjal Investment A/C No. ……………………… Deal No………………… dated ………………….. of M/s. ……………………………………………… ) 11) Entries to be after realization of compensation While any compensation amount is recovered/ realized from the Investment Client out of compensation charged / imposed during the year, the following entries shall be passed. Dr. Sundry

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