Report On Different Modes of Investment of IBBL

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Chapter 01
Introduction

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1.1 Origin of the Report
This Internship Report has been preparing under the Internship program, an indispensable part of
the Bachelor of Business Administration (BBA) program. For the internship purpose, I chose Islami
Bank Bangladesh Ltd. (IBBL), Mouchak Branch and prepare this report on the investment related
activities of the organization.

1.2 Scope of the Study
In this report I have focused on all the qualitative which include profiles of IBBL, investment
modes like Bai mode, Profit & loss sharing, Ijara mode, different schemes of investment such as
household durable schemes, housing investment scheme, transport investment scheme, car
investment scheme, investment scheme for doctors small business investment scheme, rural
development scheme, etc.

1.3 Objective of the Study
The primary objective of this report is to analyze the investment performance of Islami Bank
Bangladesh Ltd. The following objectives can be listed as the specific objectives of the study.

To understand the different modes of investment and mode wise investment procedure of
IBBL.
To examine the trend of inevestment and deposit over the years
To examine the mode wise investment and income of IBBL
To analyze classiffied investment of IBBL
To evaluate the investment performance of IBBL within the banking industry

1.4 Methodology of the Study
1.4.1 Research design:
The study, Analysis of Investment Performance of Islami Bank Bangladesh Limited, is descriptive
in nature which is based both on primary and secondary data. The study focuses on mode wise
investment mechanism and mode wise investment performance of IBBL.

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1.4.2 Description and Sources of data:
The data required for this study were collected from both primary and secondary sources; however,
majority of the information was collected from secondary sources.
a) Primary source
Primary data was collected form
Branch Manager & Second Officer
Face to face conversation with employees and staffs
Practical work experience
Face to face conversation with clients
b) Secondary source
The secondary data has been collected from
Annual Report of Islami Bank Bangladesh Limited
Manuals of Investment of IBBL
Website of the Islami Bank Bangladesh Limited
The major portion of the data source used for this report is a secondary one.
1.4.3: Data analysis and reporting:
Trend analysis and comparative analysis are made to analyze the mode wise investment
performance of IBBL. Trend of investmnet, deposit, mode wise investment, mode wise income are
analyzed in the study. A comparative analysis of non performing loan, credit to deposit ratio of
IBBL with industry average are made. Software like microsoft word, Excel are used for analyzing
and reporting purpose of the report.
1.5 Limitation of the Report
I have faced some problems during preparing my report:
Lack of experiences has acted as constraints in the way of meticulous exploration on the
topic.
Lack of current information.
Shortage of time for preparing the report in order.
The study was conducted mostly on secondary data.

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Chapter 02
Organizational
Overview

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2.1 Definition and Concept of Islamic Bank:

Islamic Bank developed under Islamic frame work, performs most standard banking Service and
investment activities on the basis of profit-loss sharing system conforming the principles of Islamic
Shariah. It operates with the objectives to implement and materialize the economic and financial
principles of Islam in the banking arena.

According to Organization of Islamic Conference (OIC), An Islamic bank is 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 operations.

According to Dr. Ziauddin Ahmed Islamic Bank is essentially a normative concept and could be
defined as conduct of banking in consonance with the ethos of the value system of Islam.

Although Islamic Bank is a financial institution, its operations and activities shows that Islamic
Bank as a Business firm with Halal transaction within the boundary of Islami Shariah .The main
objective is not only to earn profit but also to make welfare oriented Interest free and exploitation
free economy of a country.

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2.2 Islami Bank Bangladesh Limited
Islami Bank Bangladesh Limited is a Joint Venture Public Limited Company engaged in
commercial banking business based on Islamic Shari'ah with 63.09% foreign shareholding having
largest branch network ( total 286 Branches) among the private sector Banks in Bangladesh. It was
established on the 13th March 1983 as the first Islamic Bank in the South East Asia.
It is listed with Dhaka Stock Exchange Ltd. and Chittagong Stock Exchange Ltd. Authorized
Capital of the Bank is Tk. 20,000.00 Million and Paid-up Capital is Tk. 14,636.28 Million having
33,686 shareholders as on 31st December 2013.
2.3 Mission
To establish Islamic Banking through the introduction of a welfare oriented banking system and
also ensure equity and justice in the field of all economic activities, achieve balanced growth and
equitable development in through diversified investment operations particularly in the priority
sectors and less developed areas of the country. To encourage socio-economic up liftmen and
financial services to the loss-income community particularly in the rural areas.
2.4 Vision
Our vision is to always strive to achieve superior financial performance, be considered a leading
Islamic Bank by reputation and performance.
To establish and maintain the modern banking techniques, to ensure soundness and
development of the financial system based on Islamic principles and to become the strong
and efficient organization with highly motivated professional, working for the benefit of
people, based upon accountability, transparency and integrity in order to ensure stability of
financial systems.
To encourage savings in the form of direct investment.
To encourage investment particularly in projects which are more likely to lead to higher
employment.

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2.5 Strategic Objectives
To ensure customers' satisfaction.
To ensure welfare oriented banking.
To establish a set of managerial succession and adopting technological changes to ensure
successful development of an Islamic Bank as a stable financial institution.
To prioritize the clients welfare.
To emerge as a healthier & stronger bank at the top of the banking sector and continue stable
positions in ratings, based on the volume of quality assets.
To ensure diversification by Sector, Size, Economic purpose & geographical location wise
Investment and expansion need based Retail and SME/Women entrepreneur financing.
To invest in the thrust and priority sectors of the economy.
To strive hard to become a employer of choice and nurturing & developing talent in a
performance-driven culture.
To pay more importance in human resources as well as financial capital.
To ensure lucrative career path, attractive facilities and excellent working environment.
To ensure zero tolerance on negligence in compliance issues both shariah and regulatory
issues.
To train & develop human resources continuously & provide adequate logistics to satisfy
customers need.
To be excellent in serving the cause of least developed community and area.
To motivate team members to take the ownership of every job.
To ensure development of devoted and satisfied human resources.
To encourage sound and pro-active future generation.
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.

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2.6 Core Values
Trust in Almighty Allah
Strict observance of Islamic Shariah
Highest standard of Honesty, Integrity & Morale
Welfare Banking
Equity and Justice
Environmental Consciousness
Personalized Service
Adoption of Changed Technology
Proper Delegation, Transparency & Accountability
2.7 Commitments
To Shariah
To the Regulators
To the Shareholders
To the Community
To the Customers
To the Employees
To other stakeholders
To Environment

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2.8 Products and Services:
Under products and services Islami Bank Bangladesh Ltd. has below categories:
1. Deposit Schemes:
Al-Wadeah Current Account (AWCA)
Mudaraba Savings Account (MSA)
Mudaraba Term Deposit Account (MTDR)
Mudaraba Special Notice Account (MSNA)
Mudaraba Hajj Savings Account (MHSA)
Mudaraba Special Savings (Pension) Account (MSSA)
Mudaraba Savings Bond (MSB)
Mudaraba Monthly Profit Deposit Account (MMPDA)
Mudaraba Muhor Savings Account (MMSA)
Mudaraba Waqf Cash Deposit Account (MWCDA)
Mudaraba NRB Savings Bond (MNSB) Account
Mudaraba Foreign Currency Deposit Account (MFCD)
Students Mudaraba Savings Account (SMSA)
Mudaraba Farmers Savings Account (MFSA)

2.9 Investment Modes

Bai Mechanism,
Share Mechanism
Hire Purchase Under shirkatul Melk
Status of Investment:
A. Unclassified
B. Classified
Substandard
Doubtful
Bad / Loss
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Investment Scheme
Household Durables Scheme (HDS)
Investment Scheme for Doctors (ISD)
Transport Investment Scheme (TIS)
Car Investment Scheme (CIS)
Small Business Investment Scheme (SBIS)
Micro Industries Investment Scheme (MIIS)
Agricultural Implement Investment Scheme (AIIS)
Real Estate Investment Program (REIP)
Real Estate Investment (Commercial & Working Capital)
Agricultural Investment of IBBL
NRB (Non Resident Bangladeshi) Entrepreneurs Investment Scheme(NEIS)
Women Entrepreneurs Investment Scheme (WEIS)

4. Rural Development Scheme
5. Foreign Exchange
6. Special Service:
Locker Services
ATM services
M cash
I banking
Online service

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2.10 Corporate Structure of IBBL

Figure 2(1): Corporate structure

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2.11 Hierarchy Management of IBBL:
(Mouchak Branch)

Figure 2(2): Hierarchy Management of IBBL (Mouchak Branch)

Senior Vice President

Assistant vice President
Senior Principal Officer
Principal Officer
Senior Officer
Officer
Probationary Officer
Assistant Grade 1
Assistant Grade 3
Assistant Grade 2
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2.12 Corporate Information
Financial Information:
Authorized Capital Tk. 20,000.00 Million ($244.87 Million)
paid-up Capital Tk. 10,007.71 Million ($122.53 Million)
Deposits Tk. 341,853.67 Million ($4,176.44 Million)
Investment
(including Investment in Shares)
Tk. 322,772.83 Million ($3,943.33 Million)
Foreign Exchange Business:
Import Tk. 301,207.00 Million ($3,687.87 Million)
Export Tk. 178,244.00 Million ($2,182.36 Million)
Remittance Tk. 236,607.00 Million ($2,896.93Million)
Branches:
Total number of Branches 249
Total number of SME Krishi
Branches
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Total Branches 279
Number of AD Branches 43
Number of ATM Booth 293
Number of Shareholders 60,550
Manpower 11,465

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Chapter 03
Theoretical Aspects

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3.1 Invesment:
In finance, the purchase of a financial product or other item of value with an expectation of
favorable future returns. In general terms, investment means the use money in the hope of
making more money. In business, the purchase by a producer of a physical good, such as
durable equipment or inventory, in the hope of improving future. It is the commitment of money
or capital to purchase financial instruments or other assets in order to gain profitable returns in
the form of interest, income, or appreciation of the value of the instrument. Investment is related
to saving or deferring consumption.

3.2 Modes Of investment:
Modes of investment includes:
Bai-Murabaha:
Murabaha is a particular kind of sale where the seller expressly mentions the cost of the sold
commodity he has incurred, and sells it to another person by adding some profit or mark-up
there on. The profit in Murabaha can be determined by mutual consent, either in lump sum or
through an agreed ratio of profit to be charged over the cost.
Bai-Muajjal:
This mode is binding upon the Client to purchase from the Bank but bank is not bound to
declare the cost of goods and profit mark-up separately to the client. Stock and availability of
goods is a pre-condition for Bai-Muajjal agreement. The responsibility of the bank is to
purchase the desired goods at the disposal of the client to acquire ownership of the same
before signing the Bai-Muajjal agreement with the client. Bank must bear the risk of goods
until those are actually sold and delivered to the client/buyer.
Bai-Salam:
Bai-Salam is a mode of investment allowed by Islamic Shariah in which commodity/product
can be sold without having commodity /product either in existence or physical /constructive
possession of the seller. If the commodity/product are ready for sale, Bai-Salam is not allowed
by Islamic Shariah. Then the sale may be done either in Bai-Murabaha or Bai-Muajjal mode of
investment.

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Bai Istishnaa:
It is a binding contract and no party is allowed to cancel the Istishnaa contract after the price is
paid and received in full or in part or the manufacturer starts the work. It facilitates the
manufacturer sometimes to get the price of the goods in advance, which he may use as capital for
producing the goods.

Bai-as-Sarf
It means currency trading & is an export financing investment mode. When an export bills in
foreign currency, submitted by the exporter at bank, bank purchase/ negotiate the bill at a
particular rate of exchange & give value in TK to the client exporter by creating an investment,
then it is called Bai as Sarf.

Hire purchase under Shirkatul Melk:
In case of Hire Purchase under Shirkatul Melk, the asset / property involved is jointly purchased by
the Hire (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 (Hire
Bank & Hirer Client) are clearly mentioned. Under this agreement, the Hire and the Hirer becomes
co-owner of the asset under this transaction in proportion to their respective equity participation.

Mudaraba:
Most of investment of IBBL is formed under Mudaraba Mode. It is a form of partnership where one
party provides the funds while the other provides the expertise and management. Any profits
generated are shared between two parties on a pre-agreed basis, while capital loss is exclusively
borne by the partner providing the capital. But IBBL is an expert organization in business sector so
they face less failure and if there is any loss they can overcome it by other sector.

Musharakah:
The partners (entrepreneurs, bankers) share both capital and management of a project so that profits
will be distributed among them as per ratio, where loss is shared according to ratio of their equity
participation.

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Ijarah:
The term Ijarah has been defined as a contract between two parties, the lessor and the lessee,
where the lessee enjoys or reaps a specific service or benefit against a specified consideration or
rent from the asset owned by the lessor. It is a lease agreement under which a certain asset is leased
out by the lessor or to a lessee against specific rent or rental for a fixed period.
Mortgage:
A person can borrow money from the bank against his asset, like as land, house, property etc.This is
called Mortgage.
Status of Investment:
Status of investment can be classified into two major parts.There are:
C. Unclassified
D. Classified

Unclassified:
These are the investments in which the bank satisfied about the repayment.No doubt exists up till
now about their recovery.

Special Mention Account:
When investment installment first missed by the borrower, the investment account is
classified as Special Mention Account(SMA). The tenure of SMA varies with the categories
of loans.

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Classified:
These are the investment in which te bank finds overdue after the due date.The bank
applies its predefined policy and procedures, after a investment becomes classified.

Substandard:
Repayment is stopped or irregular but has reasonable prospect of improvement.If an
investment is not repaid reschedule within the SMA period, then it becomes Sub-Standard
investment. From this stage the investment is treated as defaulted. Interest is treated the
same way as in SMA. If a loan is not paid within six months period, then it is called
Substandard.

Doubtful debt:
Unlikely to be repaid but special collection efforts may result in partial recover.If an
investment is not repaid or reschedule within the sub-Standard period, and then it becomes
a doubtful investment, Interest will be treated as before in this stage. If a investment is not
paid within nine months period, then it is called Doubtful debt.

Bad / Loss:
Very little chance to recovery. If a investment is not repaid or reschedule within the
doubtful stage, then it is termed as bad or loss. Serious dount exists as to the recovery of
such investments. If a investment is not paid within one year, then it is called Bad/loss.

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Chapter-4
Different Modes of Investment

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DISBURSEMENT STAGE
MONITORING & RECOVERY STAGE
FINALIZE INVESTMENT DEAL
4.1 Investment Procedure of IBBL:
Generally a bank takes certain steps to deliver its proposed investment to the client. But the process
takes deep analysis. Because banks invest depositors fund, not banks own fund. If the bank fails to
meet depositors demand, then it must collapse. So, each bank should take strong concentration on
investment proposal. However, Islami Bank Bangladesh Limited (IBBL) makes its investment
decision through successfully passing the following crucial steps:

Figure: 4(1): Investment Procedure of IBBL

SELECTION OF THE CLIENT
APPLICATION STAGE
APPRAISAL STAGE
SANCTIONING STAGE
DOCUMENTATION STAGE
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(1) Selection of the client
Here, investment taker (client) approaches to any of the branch of Islami Bank Bangladesh Limited
(IBBL). Then, he talks with the manager or respective officer (Investment). Secondly, bank
considers five Cs of the client. After successful completion of the discussion between the client and
the bank, bank selects the client for its proposed investment. It is to be noted that the
client/customer must agree with the banks rules & regulations before availing investment.
Generally, bank analyses the following five Cs of the client:
Character;
Capacity;
Capital;
Collateral; and
Condition.
(2) Application stage
At this stage, the bank will collect necessary information about the prospective client. For this
reason, bank informs the prospective client to provide and/or fill duly respective information which
is crucial for the initiation of investment proposal. Generally, here, all the required documents for
taking investment have to prepare by the client himself. Documents that are necessary for getting
investment of IBBL are prescribed below:
Trade License photocopy (for proprietorship);
Abridged pro forma income statement;
Attested copy of partnership deed (for partnership business);
Prior three (03) years audited balance sheet (for joint stock company);
Prior three (03) years business transactions statement for the musharaka/mudaraba
investment;
Abridged pro forma income statement for the musharaka/mudaraba investment;
Attested copy of the Memorandum of Association (MOA) & Articles of Association (AOA)
for the joint stock company;
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Attested copy of the Tax Identification Number (TIN)- including final assessment;
Tenders of the proposed assets (in case of HPSM);
Detailed summary of the sundry debtors and creditors (including both time & schedule);

(3) Appraisal stage
At this stage, the bank evaluates the client and his/her business. It is the most important stage.
Because, on the basis of this stage, bank usually goes for sanctioning the proposed investment
limit/proposal. If anything goes wrong here, the bank suddenly stops to make payment of
investment.
(4) Sanctioning stage
At this stage, the bank officially approves the investment proposal of the respective client. In this
case client receives banks sanction letter. Islami Bank Bangladesh Limited (IBBL)s sanction letter
contains the following elements:
Investment Limit in million.
Mode & amount of investment.
Purpose of investment.
Period of investment.
Rate of return.
Securities
Cash/Goods security

(5) Documentation stage
At this stage, usually the bank analyses whether required documents are in order. In the
documentation stage, Islami Bank Bangladesh Limited (IBBL) checks the following documents of
the client:
I. Tax Payment Certificate.
II. Stock Report.
III. Trade License (renewal).
IV. VAT certificate
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V. Liability statement from different parties.
VI. Receivable from different clients.
VII. Other assets statement.
VIII. Aungykar Nama.
IX. Ghosona Potra.
X. Three (03) years net income & business transactions.
XI. Performance report with the bank.
XII. Account Statement Form of the bank.
XIII. Valuation Certificate
Particulars of the Proposal.
Particulars of the Mortgagor.
Particulars of the Properties.
XIV. Outstanding liability position of the bank.
(6) Disbursement stage
At this stage, bank decides to pay out money. Here, the client gets his/her desired fund or goods. It
is to be noted that before disbursement a site plan showing the exact location of each mortgage
property needs to be physically verified.
(7) Monitoring & Recovery stage
At this final stage of investment processing of the Islami Bank Bangladesh Limited (IBBL), bank
will contact with the client continually, for example- bank can obtain monthly stock report from the
client in case of micro investment. Here, the bank will keep his eye on over the investment taker. If
needed, bank will physically verify the clients operations. Also if bank feels that anything is going
wrong then it tries to recover its investment fund from the client. Example:
Telephonic communication
Issuing letter.
Final notice
Legal notice.
Suit filing
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4.2 Modes of Investment of IBBL
When money is deposited in the IBBL, the bank, in turn, makes investments in different forms
approved by the Islamic Shariah with the intention to earn a profit. Not only abank, but also an
individual or organization can use Islamic modes of investment to earn profits for wealth
maximization. Some popular modes of IBBLs Investment are discussed below. Islami Bank
Bangladesh Ltd. operates its investment activities mainly through 3 (three) mechanisms:

Figure 4(2): Investment Modes of IBBL

Mudaraba
Musharaka

Hire Purchase under
Shirkatul Meelk

Bai-Murabaha
Bai-Muazzal
Bai-Salam
Bai Istishna
Bai- as - Sarf

Istishnaa
Quard

Bai Mechanism Share Mechanism Ijara Machanism
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4.3 Bai Mechanism

Figure 4(3): Bai-Mechanism(Trading Mode)

Bai Murabaha
Meaning:
The terms 'Bai- Murabaha' have derived from Arabic words Bai and Ribhun. The word Bai means
purchase and sale and the words Ribhun means an agreed upon profit. Bai-Murabaha means sale on
agreed upon profit.
Definition:
Bai-Murabaha may be defined as a contract between a Buyer and a seller under which the seller
sells certain specific goods p0ermissible under Islamic Shariah and the Law of the land to the Buyer
at a cost plus agreed profit payable on cash or on any fixed future date in lump- sum or by
installments. The profit marked-up may be fixed on lump sum or in percentage of the cost price of
the goods. There are different types of Murabaha as given bellow:
Types of Murabaha:
In respect of dealing parties Bai-Murabaha may be of two types.
1. Murabaha Adiah: Without request from buyer if the seller sells by adding purchase value with
certain profit after getting the authority is known as Murabaha Adiah.
2. Murabaha lil Amiri Bissira: With request from buyer if the seller sells by adding purchase
value with certain profit after getting the authority is known as Murabaha lil Amiri Bissira.
Bai-Mechanism
Bai-Muazzal

Bai-Salam

Bai-Istishna

Bai-as-Sarf

Bai-Murabaha

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Important Features of Bai Murabaha:
It is permissible for the client to offer an order to purchase particular goods by the Bank dealing its
specification and committing himself to buy the same from their bank on Murabaha. i.e. Cost-plus
agreed upon profit.
It is permissible to make the promise binding upon the client to purchase from the Bank that is he is
to either satisfy the promise or to indemnify the damages caused by breaking the promise without
excuse.
It is permissible to take cash/collateral security to guarantee the implementation of the promise or to
indemnify the damages.
It is also permissible to document the debt resulting from Bai-Murabaha by a Guarantor or a
mortgage or both like any other debt is permission. Mortgage/ Cash Security may be obtained prior
to the signing of the Agreement or at the time of signing the Agreement.
Stock and availability of goods is a basic condition for signing a Bai-Murabaha agreement.
Therefore, the Bank must purchase the goods as per specification of the client to acquire ownership
of the same before signing the Bai-Murabaha agreement with the client.
After purchase of goods the Bank must bear the risk of goods until those are actually sold and
delivered to the Client, i.e., after purchase of the goods by the Bank and before selling of those on
Bai-Murabaha to the client buyer, the bank shall bear the consequences of any damages or defects,
unless there is an agreement with the client releasing the Bank of the defects that means, if the
goods are damaged, bank is liable, of the goods are defective (defect that id nor included in the
release) the bank bears the responsibility.
The bank must deliver the specified goods to the Client on specified date and at specified place of
delivery as per Contract.
The Bank shall sell the goods at a higher price (Cost +Profit) to earn profit. The cost of goods sold
and profit mark-up therewith shall separately and clearly be mentioned on the Bai- Murabaha
agreement. The profit mark-up may be mentioned in lump sum or in percentage of the purchase/cost
price of the goods. But under no circumstances, the percentage of the purchase/cost price of goods.
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But under no circumstances, the percentage of the profit shall have any relation with time or
expressed in relation with time, such as per month, per annum, etc.
The price once fixed as per agreement and deferred cannot be further increased.
It is permissible for the bank to authorize any third party to buy and receive the goods on Bank's
behalf the authorization must be in a separate contract.
These features make Bai-Murabaha identical from all other modes of Islamic Investment. There are
certain steps to accomplish a deal of Bai- Murabaha as shown below.
Procedure of investment under Bai-Murabaha:
First Step: Submission of proposal: The client's sends a proposal with the specifications of the
commodity for purchasing through the Bank and requests to make him known the date and method
of payment of price, etc.The Bank sends a quotation valid for a certain period mentioning the cost
of the goods plus profit of the bank.
Second step: Signing a promise to purchase: The client promises to buy the commodity from the
bank on Bai-Murabaha basis (for the cost of the commodity plus the agreed upon profit) The Bank
studies the request and determines the securities with terms and conditions for approval.
Third step: The first sale contract: The bank informs the client of its approval of purchasing the
commodity.The bank may pay the price immediately pr as per the agreement.The seller expresses
its approval to the sale and sends the invoice.
Fourth step: Signing of a Murabaha Sale Contract: The two parties (the bank and clients) sign the
Bai-Murabaha sale contract according to the agreement of the promise to purchase.

Fifth Step: The Bank authorizes the client or his nominee to receive the commodity. The seller
sends the commodity to the place of delivery agreed upon.The client undertakes the receipt of the
commodity in its capacity as legal representative and notifies the bank of the execution of the proxy.

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Bai Muajjal (Deferred sale)
Meaning:
The terms "Bai" and "Muajja" have been derived from Arabic words 'Bai' and 'Ajal'. The word Bai
means purchase and sale and the word 'Ajal' means a fixed time or a fixed period. "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:
The Bai-Muajjal may be defined as a contract between a Buyer and a Seller under which the seller
sells certain specific goods (permissible under Shariah and law of the country), to the Buyer at an
agreed fixed price payable at a certain fixed future date in lump sum or within a fixed period by
fixed installments. The seller may also sell the goods purchased by him as per order and
specification of the buyer.
Bai-Muajjal is treated as a contract between the bank and the client under which the bank sells to
the client certain specific goods, purchased as per order and specification of the client at an agreed
price payable with in a fixed future date in lump sum or by fixed installments.
Thus it is a credit sale of goods by which ownership of the goods is transferred by the bank to the
client but the payment of sale price by the client is deferred for a fixed period.
It may be noted here that in case of Bai- Muajjal and Bai-Murabaha, the Islamic bank is a financier
to the client not in the sense that the bank finances the purchase of goods by the client, rather it is a
financier by deferring the receipt of the sale price of goods, it sells to the client. If the bank does not
purchase the goods or does not make any purchase agreement with seller but only makes payment
of any goods directly purchased and received by the client from the seller under Bai-Muajjal / Bai-
Murabaha agreement, that will be a remittance/ payment of the amount on behalf of the client,
which shall be nothing but a loan to the client and any profit on this amount shall be nothing but
interest.
Therefore, purchase of goods by the bank should be for and on behalf of the bank and the payment
of price of goods by the bank must be made for and on behalf of the bank. If in any way the
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payment of price of goods is turned in to a payment for and on behalf of the client, or it is paid to
the client any profit on it will be Riba.
There are some important features of Bai- Muajjal as given bellow:
Important Features:
It is permissible for the Client to offer an order to purchase by the bank particular goods deciding its
specification and committing him to by the same from the bank on Bai-Muajjal I.e. deferred
payment sale at fixed price.
It is permissible to make the promise binding upon the Client to purchase from the bank, i.e. he is to
either satisfy the promise or to indemnify the damages caused by breaking the promise without
excuses.
It is permissible to take cash/ collateral security to guarantee the implementation of the promise or
to indemnify the damages.
It is also permissible to document the debt resulting from Bai-Muajjal by a Guarantor, or a
mortgage or both like any other debt. Mortgage/ Guarantee/ Cash security may be obtained prior to
the signing of the Agreement or at the time of signing the Agreement.
Stock and availability of goods is a basic condition for signing a Bai- Muajjal Agreement.
Therefore, the Bank must purchase the goods as per specification of the client to acquire ownership
of the same before signing the Bai-Muajjal Agreement with the Client.
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 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.

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Procedure of investment under Bai-Muajjal Mode:
First Step: To offer an order by the client to the bank to purchase a specific good .The client will
promise to buy the goods from the bank.
Second Step: The client will an agreed fixed price payable at a certain fixed future date in lump
sum or within a period by fixed installments.
Third Step: The bank will take collateral to guarantee the implementation of promise.The Bank
and Client sign the agreement.Than bank will purchase goods from the supplier according to the
Bai-Muajjal Agreement.
Fourth Step: Than Bank will deliver the goods to the client at the time and place specified in
agreement.

Bai Salam (Advanced purchase)
Meaning:
The terms Bai and Salam have been derived from Arabic words. The words Bai means sale
and purchase and the word Salam means Advance. Bai-Salam means advance sale and
purchase.
Definition:
It is a sale in which an advance payment is made by the buyer, but the delivery is delayed to an
agreed date. In the Bai-Salam, a financial transaction happens in advance in cash as a price of
commodity whose delivery will be in a future date. It means deferred is the commodity sold (debt in
kind) and price of the commodity described is to be aid immediately in advance.
The Bai-Salam sales serve the interests of both parties:
1. The seller- gets in advance the money he wants in exchange of his obligation to deliver the
commodity later. He benefit from the Salam sale by covering his financial needs whether they are
personal expenses for productive activity.
31

2. The purchaser-heretic is the financing bank. The bank gets the commodity it is planning to trade
on in the time it decides. Because the commodity becomes the liability of the seller who meet his
obligation. The bank will also benefit from the cheap prices for usually salam sale is cheaper than a
cash sale. This way the bank will be secured against the fluctuations of prices.
The bank can sell on parallel salam commodity in the same kind as it has previously purchased on
first salam without making one contract depend on the other. The bank also has the option of
waiting to receive the commodity and then sell it for cash or deferred payment.
Important feature:
Bai-Salam is a mode of finance allowed by Islamic Shariah in which commodity or product can be
sold without having the said commodity or product either in existence or physical possession of the
seller. If the commodities are ready for sale Bai-Salam is not allowed in Shariah. Then the sale may
be done either in Bai-Murabaha or Bai-Muajjal mode of finance.
Procedure of investment under Bai-Salam:
1. Cash sale or sale on Credit- the Bank pays the price in the contract meeting so that the seller
makes use of it and covers his financial needs. The seller abides the delivery of the commodity on
the specific due date.
2. Delivery and receipt of the commodity on the specific due Date: The bank there is several options
at the disposal of the bank to choose one of them.
a) The bank receives the commodity on the specific due date, and either for cash or on credit.
b) The bank can authorize the seller to sell the commodity on its behalf as against fees (or without
fees).
c) Direct the seller to deliver the commodity to a third part (the Buyer) according to pervious
promise of purchase that is at an emphatic demand of purchase.
3. The sale Contract: The bank agrees to sell the commodity for cash or a deferred price higher than
the salam purchase price. The buyer agrees to purchase and to pay the price according to the
agreement.
32

Rules of Bai-Salam
1. Commodity should be known: It is a condition that the commodity should be known Ignorance
about the commodity leads to dispute which invalidates the contract.
2. Monitoring By Specification: It is a condition that the commodity can be monitored by
specification to the maximum possible degree, only negligible variation is tolerated If the
commodity cannot Be monitored by specification salam is impermissible, because of ignorance that
leads to dispute.
3. Availability of Goods for Delivery: It is a condition that the commodity is possible to deliver
when it is due. That is the probability of its existence at the time of delivery is deemed to be high, if
the contrary is the case, salam, is impermissible.
4. Salam n the Whole to be possessed partly: It is permissible to draw a salam sale contract on
one whole thing but to be possessed at different times in specific parts.
5. Commodity a Liability Debt on the Seller: It is a condition that the commodity is a liability
debt, The seller is obliged to deliver the commodity when it is due, according to the specification
stipulated in the contract without abiding as to whether it is the product of his factory or the produce
of his private firm or from others.
6. Salam on Existing Goods: Salam sale is impermissible on existing commodities because
damage and deterioration cannot be assured before delivery on the due date. Delivery may become
impossible, anything which is risky and elevator.
7. Salam on Land and Real Estates salam: Is impermissible on Land lots and real estates because
the description or the real estate entails the location. If the location is determined then it is specified,
which contradicts what the jurists agreed upon, that salam is a liability debt.
8. Salam on Special Item: Salam is permissible on a commodity of a specific locality if it is
assured that it is almost always available in that locality and it rarely becomes unavailable.
9. Advance Payment: It is a condition that the purchase price in salam is specified and advanced to
the seller at the contract meeting.
33

10. Date of Delivery Known: It is a condition in salam sale that the due date is known to avoid
ignorance which leads to dispute.
Bai Istisnas
Definition:
Instisna'a sale is a contracting which the price is paid in advance at the time of contract and the
object of sales manufactured and delivered later a manufacturer, artist or craftsman may take orders,
with or without advance payment, to make articles himself or hire labor to do so.
The majority of the jurists consider Istisna's as one of the divisions of Salam, Therefore, It is
subsumed under the definition of Salam, But the Hanafie school of jurisprudence makes Istisna's as
an independent and distinct contract, The jurists of the Hanafie school have given various
definitions to Istisna'a some of which are "That it is a contract with a manufacturer to make the
something" and It is a contract on a commodity on liability with the provision of work" The
purchasers called Mustasnia contractor and the seller is called "sania" maker manufacturer and the
thing is called 'masnooa' manufactured, built, made.
Islami Bank can utilize Istisna'a in two ways.
1. It is permissible for the bank to buy a commodity on Istisna'a contract then sell it after receipt for
cash installed or deferred price.
2. It is also permissible for the bank to enter into Istisna'a contract in the capacity of seller to the
who demand a purchase of a particular commodity and then straw a parallel istisna'a contracting the
capacity of a buyer with another partition cake manufacture the -commodity agreed upon in the first
contract.
The first Istisna'a can be immediate or deferred (the payment) the payment in the second Istisna'a
can be each or deferred stated blow are the practical steps which the bank applies the modes of
Istisna'a sale, parallel Istisna'a with reference to the non-existence of any legal relation or financial
obligation between.
1. The purchaser requesting Istisna'a (the end use) in the first contract, and
34

2. The (maker), manufacturer, (the builder), (the seller) who manufactures the article in accordance
to the parallel Istisna'a contract.
So any disagreements that may arise are settled under each contract separately according to the
provision therein.
Rules for Istisna'a Sale:
1. It is a condition in the Istisna'a contract to stare in the clearest of terms the type dimensions and
all the specification required, because it is a condition in all commutative contracts the sold
commodity must be known to avoid ignorance which leads to dispute.
2. Istisna'a contract is valid for objects that can be made. It is invalid for corn, wheat, barley or fruit
and all natural products whose sale on liability is a salam and not Istisna'a.
3. The object sold in Istisna'a is a fixed liability debt therefore it is permissible to be a valuable asset
made according to special specification- nothing like it-as the customer wishes with the provision
that to can be monitored buy description. For this feature Istisna'a is different from the salam, which
is permissible only in similar assets.
4. The Istisna'a is not confined to what the seller makes after he contract, nut the maker will be
satisfying his obligation if he brings in an article conforming to all the specifications. Whether it is
his make before the contact or the maker of someone else. The specifications demanded by the
buyer are the most important as the commodity subject of contract is a liability debt.
5. The Istisna'a contract is a binding to the two parties, and no party has the right to retract, only if
the commodity does not conform to the specifications demanded, can the buyer have the option.
6. Once the contract is drawn the ownership of the asset is affirmed to the buyer and the ownership
of the price is affirmed to the maker.
7. It is not a condition in the Istisna'a contract to advance the price. Usually part of the price is paid
in advance and the remainder will be withheld to the time of delivery and receipt of the commodity.
8. It is a condition that the period of delivery is specified whether it is short or long so as to avoid
ignorance which leads to conflict between the two parties.
35

9. It is condition that the period of delivery is started of the commodity needs loading or
transportation expenses.
10. The buyer may stipulate in the Istisna'a contract that the commodity shall be manufactured or
produced by a specific manufacturer, or manufactured from specific materials. This is not permitted
in the case of salam sale.

Bai-as-Sarf
Bai- as-Sarf is a contract of exchange of money for money. It means currency trading & is an export
financing investment mode. When an export bills in foreign currency, submitted by the exporter at
bank, bank purchase/ negotiate the bill at a particular rate of exchange & give value in TK to the
client exporter by creating an investment, then it is called Bai as Sarf.
Bai-as-Sarf (FDB) is practiced for providing post shipment finance facility against Foreign
Currency export Bills and
Bai-as-Sarf (FCD) is done for providing advance finance facility against Foreign Currency
Cheque /Draft
Objectives for Introduction of Bai-As-Sarf
To perform the post-shipment finance under shariah compliant mode.
To meet up the exporters urgent need to run the business smoothly.
To meet up the urgent need of Foreign Currency Cheque /Draft holders.
Area and Eligibility of Bai-As-Sarf
100% export oriented industries/farms having limit of Bai-as-Sarf or availing working
capital limit.
Valued Client who receives Foreign Currency Cheque /Draft from home and abroad against
sales proceeds or services.
NRBs that remit the Foreign Currency from abroad through Foreign Currency Cheque
/Draft.
The client who have valid export registration certificate.
36

Features
This is a post-shipment finance mechanism under Bai mode.
Bai-as-Sarf meanssale of price for price and each price is consideration of the other. It also
means sale of monetary value for monetary value i.e. currency exchange.
This is also known as purchase/sale of Foreign Currency to earn Exchange income under the
Bai-as-Sarf agreement.
Usually exchange of one currency into another currency is dealt under Bai-as-Sarf mode.
The related foreign currency will be received by the bank as the client sold out the same to
the bank at agreed upon exchange rate.
Since no law in this regard is prevalent in Bangladesh to govern such Bai- As-Sarf
agreement, the relationship between the Client and the Bank shall be treated as seller and
buyer.
In case of any dispute arising out of Bai-As-Sarf agreement or regarding the terms and
conditions of the agreement, the Banks decision shall be final and binding upon the parties.
In the event of the Client's failure to repatriate the export proceeds by any consequence even
for which the client is not responsible, the Client shall be liable to pay back the amount paid
to him in connection with the said documents with Compensation/Fine/Penalty to the Bank.

37

4.4 Share Mechanism

Figure 4(4): Share Mechanism
Mudaraba
Definition:
It refers to a contact between two parties in which one party supplies capital to the other party for
the carrying on of some trade on the condition that the resulting profits be distributed in a mutually
agreed proportion while all loss is borne by the provider of the capital. Mudarabah is also known as
Qirad and Muqaradah
Mudaraba is a contract of those who have capital with those who have expertise where the first
party provides capital and the other party provides the expertise with the purpose of earring "halal"
(Lawful) profit which will be devised between them in ration agreed upon. This mode serves the
business interest of the capital owner and the mudharib (agent).
The capital owner may not have the opportunity or the experience to make turn over capital and
trade with it. On the other hand, the agent (the Mubarib)
May not have the adequate capital to put to materialize his experience, such lackings of both parties
bring them into a contract of Mudarabah. It had certain steps to be followed. The following is the
steps of the Mudarabah contract.

Share Mechanism

Mudaraba

Musharaka
38

Steps of Mudarabah
1. Establishing a Mudharabah Project: The bank- the bank provides the capital as a capital
owner. The Mudharib- provides the effort and expertise for the investment of capital in exchange of
a share in profit agreed upon.
2. The Results of Mudharabah: The two parties calculate the earrings and divide the profits at the
end of Mudharabah; this can be done periodically in accordance with the agreement along with
observance to legal rules.
3.Payment of Mudharabah Capital: The banks recovers the Mudharabah capital it contributed
before dividing the profits between the two parties because profit is protection to capital in case of
agreement to distribute profits periodically before the final settlement it must be on account until the
security of capital is assured.
4. Distribution of wealth resulting from Mudharabah: In case of loss, the capital owner (the
bank) bears the loss. In the event of profits, they are divided between the two parties in accordance
with the agreement between them with observance to the principle "profit is protection to capital"
Rules of Mudharabah:
1. Capital must be Specific: It is a condition in Mudharabah that capital must be specific or its
return to owner, so its amount must be known at the contract, and because the uncertainty about the
amount of capital necessarily leads to uncertainty about the amount of profit, which represents an
increment to capital.
2. Capital must be in Currency: it is a condition that capital must be a currency in circulation.
However, It can be merchandise only in condition that it is evaluated at the contract and the agreed
upon value becomes the capital of Mudharabah.
3. Capital Not a Liability debt on Mudarib: It is a condition that in capital must not be a liability
debt on the Mudharib, because the Mudharib is a trustee and in respect to the debt, it is a guarantor
who can only be absolved after payment.
39

4. Mixing of Private Capital Permissible: It is permissible for a mudharib to mix its private
capital with the capital of the Mudharabah, thus it becomes a partner, as well, and its disposal of
capital on the basis of Mudharabah is permissible.
5. Delivery of Capital to Mudarib: It is a condition that the capital of Mudharabah must be
delivered to the mudharib because not delivering it imposes constrictions on the withhold it
imposes constrictions on the mudharib and restricts its power disposal. Some of the jurists permit
the capital owner to withhold capital and release it gradually according to the needs of the mudharib
since Mudharabah adjudges unrestricted disposal but not deliver.
6. Imposition of Restriction on Mudarib: It is permissible to impose restrictions on the mudharib
if the restriction is beneficial and does not constitute a constriction on the agent to attain the profit
required and is not counterproductive to the purpose of the Mudharaba if the mudharib violates the
restriction contravenes the beneficial condition, it becomes a usurper and guarantees capital to the
capital owner.
7. Hiring Helping Hands by Mudarib: It is permissible for the Mudharib to hire assistance in
difficult work, which it is unable to do by itself. Recourse shall be made to prevailing custom to
determine that.
8. Disposal of the Mudharib: The disposal of the Mudharib is confined to what is conducive to the
Mudharabah. It must lend or donate nothing of the Mudharabah capital It is also not allowed to
purchase, for Mudharabah with more than its capital, nor is it allowed to go into partnership with
others using the Mudharabah capital. All of the above is permissible if the capital owner consents
and authorizes the agent to use its discretion.
9. No Security or Guarantee except Negligence: No security on the Mudharib shall be stated in
the Mudharabah contract except in case of negligence or trespass because the mudharib is a trustee
on what is in its hold, capital is judged as a deposit. It is permissible to take a surety mortgage from
the mudharib to guarantee the payment in case of negligence or trespass or violation of conditions,
but it is impermissible to take that as a guarantee to capital or profit, because it is impermissible for
the Mudharib to guarantee neither Capital nor profit.
10. Profit Sharing as per Agreed Ratio: It is a condition that profit should be specific because it
the subject of the contract and being unknown abrogates the contract. The contraction parties should
40

stipulate in the contract the profit shares (in percentage) for each one. It is impermissible to stipulate
a lump sum as profit to either party so as not to lead to the termination of profit by one of them.
Profit in Mudharabah is distributed according to the agreement of the two contraction parties. They
may agree on specific rations, be more or less.
11. Loss to be borne by the Owner of the Capital: It is a condition that the capital owner bears
alone the loss (the Mudharib bears nothing of it) because loss is a decrease in capital and capital
belongs to the owner.
12. Profit is Protection to Capital: The Mudharib shall collect its share of the profit only after
obtaining the permission of the capital owner. Also the Mudharib is entitled to collect its share of
profit only after capital is recovered , because the principle says "profit is protection to capital" In
case of temporary division of profit before the final settlement, and the Mudharabah is contenting,
the loss incurred later shall be made good from the profit distributed.
13. Recovery of Capital: The ownership of the mudharib becomes secure after the liquidation of
the Mudharabah and the capital owner recovered its capital. Some of the Jurists hold the view that
auditing is like division and possession. If two parties reach a final settlement after the liquidation
of the assets and leave the Mudharabah, it is considered to be a new mudharabah and neither one
makes good the loss of the other.
14. Not a Binding Contract: Mudharabah is terminated if one of the two parties rescinds it because
it is an optional not a binding contract. Some of the jurists hold the view that Mudharabah is binding
and it cannot be rescinded if the Mudharib commences work.

41

Musharaka (Partnership)
Meaning and Definition:
The word Musharaka" has been derived from Arabic words "Sharikat" or Shirkat". In Arabic
Sharikat and Shirkat means partnership or sharing. Thus the word "Musharaka" means a partnership
between two or more persons or institutions.
Musharaka means a partnership established between two or more persons or institutions for purpose
of a commercial venture participated both in the capital and management where the profit may be
shared between the partners as per agreed upon ratio and the loss, if any is to be borne by the
partners at per capital equity ratio.

In this case of Investment, "Musharaka" meaning a partnership between the Bank and the Client for
a particular business in which both the Bank and the Client provide capital at an agreed upon ratio
and manage the business jointly. Share the profit as per agreed upon ratio and bear the loss, if any in
proportion to their respective equity.
Bank may move itself with the selected Client for conducting any Shariah permissible business
under Musharaka mode.

Features of Musharaka:
Bank and client both supply capital unequally/equally.
Profit is divided as per agreement and actual loss is divided as per equity.
Client will maintain all accounts properly bank or its agent may verify or audit it.
Banks can advice the client in such a business in respect of the businesses.
All partners can participate in the management of the business and can work for it.
The liability of the partner is normally unlimited. Therefore, all the liabilities shall be borne
proportionately by all the partners.

42

4.5 Ijara Mechanism

Figure 4(5): Ijara Mechanism
Hire Purchase Sirkarul Meelk (HPSM): HPSM is a combination of three Inv mechanisms:
i. Sirkatul Meelk (SM)
ii. Leasing (H: Hiring)
iii. Bai(P: purchase)
Investment item or asset to be build/ purchased, must be capable to generate rent. It is widely
practice by the bank in real estate, transport, industrial project finance etc.
SM (Sirkatul Meelk- Partnership): It is a contract of partnership in ownership of an asset having
capability to produce service/ rent through purchasing/ building the inv item/ asset by deploing
equal/ unequal capital by the partner.
H (Hiring): One partner (Hirer) hires the part/ share of asset of other partner (Hiree) against
payment of rent there against to the hiree in installment basis.
P (purchase): One partner (Hirer: Inv client) promise to purchase the share of other partner
(Hiree:Bank) against payment of share value of hiree part by part for acquiring ultimate/ 100%
owner of the subject asset at the end of the contract period.

Ijara Mechanism
Sirkatul Meelk
(SM)

Leasing (H: Hiring)

Bai (P: purchase)

43

Chapter-5
Analysis

44

5.1 Year Wise Deposits of Islami Bank Bangladesh Limited:
Deposit is the life-blood of a bank. Bank has given utmost importance in mobilization of deposits
introducing a few popular and innovative schemes. Bank collects deposit at lower profit and makes
investment at a higher profit. Therefore in analyzing the investment activities of a bank it is to
essential to know the deposit performance of the bank.
Account opening trend from 2009 to 2013

Figure 5(1): Year wise depositors and their growth
Source: Annual Report (2009-2013)

Interpretation: The graph shows an upward trend in total depositors of Islami Bank Bangladesh
Limited from 2009 to 2013. From 2009 to 2013 the total depositors of IBBL have increased. In
2009 the total depositors were 4591463 but in 2013 the depositors were 8538969. It was possible
due to the superior customer service delivery at the branch level and expansion of branches in the
urban areas.

2009 2010 2011 2012 2013
No. of Deposetors 4591463 4939502 6004731 7031297 8538969
Acc. Increased 229567 348039 1065229 1026566 1507672
Growth % 5% 8% 22% 17% 21%
4591463
4939502
6004731
7031297
8538969
0
1000000
2000000
3000000
4000000
5000000
6000000
7000000
8000000
9000000
No. of Depositors
45

5.2 Deposit Collection & Growth rate
In Million TK
Year 2009 2010 2011 2012 2013
Deposit 244292 291935 341854 417844 473141
Growth 42177 47643 49919 75990 55297
Growth % 20.86% 19.50% 17.10% 22.23% 13.23%
Table 1: Deposit Collection

Figure 5(2): Growth rate of deposit

Interpretation: There is an increasing trend of deposit of IBBL. From the above chart we can see
that the lowest deposit was TK 244292 million in 2009 and the highest amount was Tk 473141
million in 2013. This increasing trend of deposit was mainly due to expansion of branches and
better customer services. However, the growth rates of deposit of IBBL were fluctuating.

20.86%
19.50%
17.10%
22.23%
13.23%
0.00%
5.00%
10.00%
15.00%
20.00%
25.00%
2009 2010 2011 2012 2013
Growth Rate %
Growth Rate %
46

5.3 Year wise Investment & Growth rate In Million Tk
Year 2009 2010 2011 2012 2013
Investment 214616 263225 305841 372921 406805
Growth Amount 34562 48609 42616 67080 33896
Growth % 19.20% 22.65% 16.19% 21.93% 9.09%
Table 2: Year wise general Investment
Source: Annual report (2009-2013)

Figure 5(3): Year wise growth rate
Interpretation: The graph shows that the total investment amount increases gradually year by year.
There is decreasing trend in growth rate of investment over the years. The investment was Tk
214616 million in 2009 and it increased to Tk 406805 million in 2013. However, the growth rate of
year wise investment of IBBL has fluctuated over the years.

19.20%
22.65%
16.19%
21.93%
9.09%
0.00%
5.00%
10.00%
15.00%
20.00%
25.00%
2009 2010 2011 2012 2013
Growth Rate of Investment
Growth %
47

5.4 Investment to Deposit ratio

year Investment to
Deposit Ratio
2009 87.85%
2010 90.17%
2011 87.29%
2012 85.18%
2013 82.35%
Table 3: Investment to Deposit ratio

Figure 5(4): Investment to deposit ratio
Interpretation: The graph shows that investment to deposit ratio of IBBL has decreased over the
years. In 2009 ratio was 87.85% and 2010 ratio was 90.17%. From the 2010 to 2013 it deceased.

87.85%
90.17%
87.29%
85.18%
82.35%
78.00%
80.00%
82.00%
84.00%
86.00%
88.00%
90.00%
92.00%
2009 2010 2011 2012 2013
Investment to Deposit Ratio
Investment to Deposit
Ratio
48

5.5 Sector Wise Investment in Million TK
Year 2012 2013
Industrial 104975 121531
Commercial 32324 39135
Real Estate 21754 27057
Agriculture 19658 20306
Transport 6449 6687
SME 176107 173660
Other 11654 18429
Table 4: Sector Wise Investment

Figure 5(5): Sector wise investment in 2012 & 2013
Interpretation: The sector wise investment of IBBL is stable to some sectors and fluctuating to
others. In SME sector, the percentage of investment was 47% in 2012 where it decreased to 43% in
2013. Again, in industrial sector, the percentage was 28% in 2012 where it increased to 30% in
2013. In other sectors such as transport, agriculture, real estate, the investment rate was almost same
in 2012 and 2013.
28%
9%
6%
5%
2%
47%
3%
Sector wise investment
in 2012
Industrial
Commercial
Real Estate
Agriculture
Transport
SME
Other
30%
9%
7%
5%
2%
43%
4%
Sector wise investment
in 2013

Industrial
Commercial
Real Estate
Agriculture
Transport
SME
Other
49

5.6 Scheme Wise Investment
In Million TK
Year 2009 2010 2011 2012 2013
Rural Development
Scheme(RDS)
3752 5110 7072 10390 13731
House hold Durable Scheme 686 962 1070 955 1048
Invest Scheme for Doctors 17 15 14 32 37
Transport Investment Scheme 3630 4732 6707 6887 7057
Car Investment Scheme 54 139 152 113 75
Small Business Investment
Scheme (SBIS)
1160 1703 2348 2774 3202
Micro-Industries Investment
Scheme
50 47 38 36 29
Agricultural Implements
Investment Scheme
77 127 210 278 337
Housing Investment Scheme 453 419 367 316 261
Real Estate Investment Program
(REIP)
7933 10155 12485 15660 15903
PGHBN 358 903 1483 2059
Sub Total 17812 23767 31366 38924 43739
Total Investment 214616 263225 305841 372921 406805
% of total investment 8.3 9.03 10.26 10.72 10.75
Table 5: Scheme Wise Investment
Interpretation: IBBL invested 8.3% in 2009 of their total investment in their various types of
schemes. The percentage increased year by year. The maximum rate of investment was in 2013 by
10.75% which shows the satisfactory growth of the bank.

50

5.7 Division wise investment

Figure 5(6): Investment in division area
Source: Annual report (2013)
Interpretation: Graph shows that IBBL invests maximum in Dhaka division which is 58% of total
investment. The rate of investment in Chittagong is also noteworthy which 20% is. But in other
divisions the bank does not feel interested to make investment.
5.8 Area wise investment

Figure 5(7): Total investment area wise 2013
Source: Annual report (2013)
Interpretation: IBBL invests their maximum amount in urban area which is 85% of their total
investment and in rural area the rate is 15%.

58%
20%
7%
9%
2% 2% 2%
Division Wise Investment in 2013
Dhaka
Chittagong
Khulna
Rajshahi
Rangpur
Sylhet
Barisal
15%
85%
Area Wise Investment in 2013
Rural Area
Urban Ara
51

5.9 Mode Wise Investment
In Million TK
Year 2009 2010 2011 2012 2013
Bai-murabaha 117180 146135 177,136 221632 225876
HPSM 73871 80093 89,070 96056 95481
Bai Muajjal 7318 12393 15,912 18295 24053
Bai- as-Sarf 11289 5141 2,744 9531 29686
Quard 2833 2095 5,614 9156 13670
Bai- Salam 2082 3624 3,528 4532 4200
Mudaraba 0 1500 2,266 0 0
Musharaka 43 12244 9,571 13719 13838
Total 214616 263225 305,841 372921 406805
Table 6: Mode Wise Investment

Figure 5(8): Mode wise investment
Interpretation: In the year 2009, the total mode wise investment was 214616 million tk. and the
maximum investment was in bai-murabaha mode. The amount has increased year by year and the
maximum rate of investment was in 2013 by 406805 million tk.

214616
263225
305,841
372921
406805
0
100000
200000
300000
400000
500000
2009 2010 2011 2012 2013
I
n

M
i
l
l
i
o
n

T
K

YEAR
Mode Wise Investment
52

5.10 Income from investment
In Million TK
Year 2009 2010 2011 2012 2013
Investment 214616 263225 305,841 372921 406805
Income from investment 21370.53 24766.26 32019.53 43672.23 48145.46
% of income from
mode wise investment
10% 9% 10% 12% 12%
Table 7: Income from investment

Figure 5(9): Income from Investment

Interpretation: The Graph shows that there is an increasing trend of income from Mode-wise
investment. The income from Mode-wise investment was 214616 million tk. which was 10% of
total investment. The rate of investment slightly down to 9% in the year of 2010 but it again gained
its position in 2011 by 10%. The maximum rate of investment was in 2012 & 2013 by 12%.

10%
9%
10%
12%
12%
0%
2%
4%
6%
8%
10%
12%
14%
2009 2010 2011 2012 2013
% of income from mode wise investment
% of income
53

5.11 Investment under Bai Mechanism In Million TK
Year 2009 2010 2011 2012 2013
Bai-murabaha 117180 146135 177,136 221632 225876
Bai Muajjal 7318 12393 15,912 18295 24053
Bai- as- Sarf 11289 5141 2,744 9531 29686
Quard 2833 2095 5,614 9156 13670
Bai- Salam 2082 3624 3,528 4532 4200
Sub Total 140702 169388 204,934 263146 297485
Total Investment as a Percentage under Bai
mechanism
65.56% 64.35% 67.01% 70.56% 73.13%
Table 8: Investment under Bai Mechanism

Figure 5(10): Total Investment as a Percentage under Bai mode
Interpretation: The investment trend under bai mechanism was 140702 million tk. which was
65.56% of total investment under mode-wise in 2009. The rate of investment increased year by year
and it reached to the maximum point which was 73.13% in the year of 2013.

65.56%
64.35%
67.01%
70.56%
73.13%
55.00%
60.00%
65.00%
70.00%
75.00%
2009 2010 2011 2012 2013
%

o
f

t
o
t
a
l

i
n
v
e
s
t
m
e
n
t

Total Investment as a % under Bai
mechanism
% of total investment
54

5.12 Income from Bai Mechanism
In Million TK
Year 2009 2010 2011 2012 2013
Bai Murabaha 11716.35 13436.2 18634.82 25625.83 28494.77
Bai Muajjal 947.2 1170.33 1638.05 2342.46 3235.75
Bai Salam 130.1 204.45 222.31 360.05 306.18
Bai - as- Sarf 85.25 107.85 181.13 161.41 221.37
Income from Bai Mechanism 12878.90 14918.84 20676.32 28489.74 32258.07
Income from Investment 21370.53 24766.26 32,020 43672.23 48145.46
Income from Bai mechanism as % of total
income
60.26% 60.24% 64.57% 65.24% 67.00%
Table 9: Income from Bai Mechanism

Figure 5(11): Income from Bai Mode as percentage of total income
Interpretation: The rate of income from bai-mechanism was 60.26% in the year of 2009. The rate
was same in 2010 and then started to increase. The rate was 64.57% in 2011 and again increased by
65.24% in the years of 2012 & 67.00% in 2013.

60.26%
60.24%
64.57%
65.24%
67.00%
55.00%
60.00%
65.00%
70.00%
2009 2010 2011 2012 2013
Income from Bai mechanism as % of total
income
Income from Bai
mechanism as % of total
income
55

5.13 Investment under Share Mechanism
In Million TK
Year 2009 2010 2011 2012 2013
Mudaraba 0 1500 2,266 0 0
Musharaka 43 12244 9,571 13719 13838
Sub Total 43 13744 11,837 13719 13838
Total Investment as a percentage under Share
mechanism
0.02% 5.22% 3.87% 3.68% 3.40%
Table 10: Investment under Share Mechanism

Figure 5(12): % of total invests under share mechanism
Interpretation: There is a fluctuating trend of investment under Share Mode. In 2009, the rate was
0.02% but it increased drastically by 5.22% in the very next year. But in the year of 2011, the rate
was decreasing. Finally, the rate of investment stick to 3.40% which shows a downward trend of
investment under share-mechanism.

0.02%
5.22%
3.87%
3.68%
3.40%
0.00%
2.00%
4.00%
6.00%
2009 2010 2011 2012 2013
Total Investment as a percentage under
Share mechanism
Total Investment as a
percentage under Share
mechanism
56

5.14 Income from Share Mechanism In Million TK
Year 2009 2010 2011 2012 2013
Mudaraba 0 7.58 -284.57 18.56 0
Musharaka 551.8 891.41 1608.59 1650.85 2013
Total Income from Share Mechanism 551.80 898.99 1324.02 1669.41 2013.00
Income from Investment 21370.53 24766.26 32,020 43472.23 48145.46
Income from Share mechanism as % of
total income
2.58% 3.63% 4.14% 3.84% 4.18%
Table 11: Income from Share Mechanism
Souce: Annual report (2009-2013)

Figure 5(13): Income from Share mechanism as % of total income

Interpretation: Income from share mode is in increasing trend. In 2009, the rate of income was
2.58% and it slightly increased to 3.63% in 2010. Afterwards the rate of income increased year by
year. In 2011 & 2012 the rate was 4.14% & 3.84% but in 2013 the change was noteworthy as the
rate was 4.18%.

2.58%
3.63%
4.14%
3.84%
4.18%
0.00%
1.00%
2.00%
3.00%
4.00%
5.00%
2009 2010 2011 2012 2013
Income from Share mechanism as % of
total income
Income from Share
mechanism as % of
total income
57

5.15 Investment under HPSM
In Million TK
Year 2009 2010 2011 2012 2013
HPSM 73871 80093 89,070 96056 95481
Total Investment as a
Percentage under HPSM
34.42% 30.43% 29.12% 25.76% 23.47%
Table 12: Investment under HPSM

Figure 5(14): % of total invests under HPSM

Interpretation: Investment under HPSM is decreasing trend. In 2009, the investment was 73871
million tk. which was 34.42% of total investment. From 2010 the investment was decreasing. In
2010, the rate of investment was 30.42% and it decreased to 23.47% in 2013.

34.42%
30.43% 29.12%
25.76%
23.47%
0.00%
10.00%
20.00%
30.00%
40.00%
2009 2010 2011 2012 2013
Total Investment as a Percentage under
HPSM
58

5.16 Income from HPSM
In Million TK
Year 2009 2010 2011 2012 2013
Income from HPSM 7129.47 8032.62 8562.56 11000.36 11621.38
Income from total Investment 21370.53 24766.26 32,020 43672.23 48145.46
Income from HPSM as % of total
income
33.36% 32.43% 26.74% 25.19% 24.14%
Table 13: Income from HPSM

Figure 5(15): Total Income under HPSM

Interpretation: Income from HPSM is downward trend. In 2009, the rate of income was 33.36%. In
2010 the rate was 32.43% though it decreased slightly at 26.74% in 2011. Again it started to
decrease from 2012 and reached to a position of 24.14% in 2013.

33.36% 32.43%
26.74%
25.19%
24.14%
0.00%
10.00%
20.00%
30.00%
40.00%
2009 2010 2011 2012 2013
Income from HPSM as % of total income
Income from HPSM as
% of total income
59

5.17 Classified Investment
In Million TK
Year 2009 2010 2011 2012 2013
Total Classified investment 5063.396 4655.632 8292.324 14212.8 14941.9
% of Classified Investment in total
Investment
2.36% 1.77% 2.71% 3.81% 3.67%
Table 14: Classified Investment

Figure 5(16): % of Classified Investment in total Investment

Interpretation: The graph shows that classified investment as a percentage of total investment has
increased over the years. However, classified investment has increased from 2.36% in 2009 to
3.67% in 2012. This indicates that credit recovery performance has worsen over the years.

2.36%
1.77%
2.71%
3.81%
3.67%
0.00%
1.00%
2.00%
3.00%
4.00%
5.00%
2009 2010 2011 2012 2013
% of Classified Investment in total
Investment
% of Classified
Investment in total
Investment
60

5.18 Substandard Investment In Million TK
Year 2009 2010 2011 2012 2013
Substandard Investment 1576.532 896.419 3,152 2094.313 1707.266
% Substandard of total Classified
Investment
31.14% 19.25% 38.01% 14.74% 11.43%
Table 15: Substandard Investment

Figure 5(17): % Substandard of total Classified Investment
Interpretation: The graph shows that substandard as percentage of classified investment has
fluctuated over the years. However, the substandard as percentage of classified investment has
decreased from 31.14% in 2009 to 11.43% in 2013. This indicates that IBBL has been able to
prevent most of its classified investment to become substandard.

31.14%
19.25%
38.01%
14.74%
11.43%
0.00%
5.00%
10.00%
15.00%
20.00%
25.00%
30.00%
35.00%
40.00%
2009 2010 2011 2012 2013
% Substandard of total Classified Investment
% Substandard of total
Classified Investment
61

5.19 Doubtful Investment In Million TK
Year 2009 2010 2011 2012 2013
Doubtful 751.159 520.745 802.794 1295.18 653.099
% Doubtful of total Classified
Investment
14.84% 11.19% 9.68% 9.11% 4.37%
Table 16: Doubtful Investment

Figure 5(18): % Doubtful of total Classified Investment

Interpretation: The graph shows that doubtful as percentage of classified investment has fluctuated
over the years. However, the doubtful as percentage of classified investment has decreased from
14.84% in 2009 to 4.37% in 2013. This indicates that IBBL has succeeded to prevent most of its
classified investment to become doubtful.

14.84%
11.19%
9.68%
9.11%
4.37%
0.00%
2.00%
4.00%
6.00%
8.00%
10.00%
12.00%
14.00%
16.00%
2009 2010 2011 2012 2013
% Doubtful of total Classified Investment
% Doubtful of total
62

5.20 Bad & Loss In Million TK
Year 2009 2010 2011 2012 2013
Bad & Loss 2735.705 3238.468 4337.204 10823.31 12581.54
% Bad & Loss of total Classified
Investment
54.03% 69.56% 52.30% 76.15% 84.20%
Table 17: Bad & Loss

Figure 5(19): % Bad & Loss of total Classified Investment

Interpretation: The graph shows that bad/loss as percentage of classified investment has fluctuated
over the years. However, the bad/loss as percentage of classified investment has increased from
54.03% in 2009 to 84.20% in 2013. This indicates that IBBL has failed to prevent most of its
classified investment to become bad/loss.

54.03%
69.56%
52.30%
76.15%
84.20%
0.00%
10.00%
20.00%
30.00%
40.00%
50.00%
60.00%
70.00%
80.00%
90.00%
2009 2010 2011 2012 2013
% Bad & Loss of total Classified Investment
% Bad & Loss of total
63

Chapter-6
Comparative Analysis

64

6.1 Deposit of IBBL and Total National Deposit In Million TK
Year 2009 2010 2011 2012
Total National Deposit 8387333 3721900 4509700 5396000
Total Deposit of IBBL 244292 291935 341854 417844
% of deposit of IBBL
in TND
8.04% 7.84% 7.58% 7.74%
Table 18: Deposit of IBBL and Total National Deposit
Source: Annual report of IBBL and Bangladesh Bank

Figure 6(1): Deposit of IBBL as a Percentage of Total National Deposit

Interpretation: The graph shows that over the period of three years, comparative deposit
performance of IBBL has not increased. The deposit of IBBL as percentage of total national deposit
has fluctuated over the years.

8.04%
7.84%
7.58%
7.74%
7.20%
7.40%
7.60%
7.80%
8.00%
8.20%
2009 2010 2011 2012
% of deposit of IBBL in TND
% of deposit of IBBL in
TND
65

6.2 Investment of IBBL as a Percentage of Total National Investment
In Million TK
Year 2009 2010 2011 2012
Total investment of IBBL 214616 263225 305841 372921
Total National Investment 2439800 3297500 3842600 4238500
% of IBBL investment in TNI 8.80% 7.98% 7.96% 8.80%
Table 19: Investment of IBBL as a Percentage of Total National Investment

Figure 6(2): Investment of IBBL as a Percentage of Total National Investment

Interpretation: The graph shows that the percentage of IBBLs investment in total national
investment has decreased from 8.80% in 2009 to 7.98% in 2010 after 2010 increased in 2012
8.80%. This indicates that comprative investment of IBBL has increased over the years.

8.80%
7.98%
7.96%
8.80%
7.50%
8.00%
8.50%
9.00%
2009 2010 2011 2012
% of IBBL investment in TNI
% of IBBL investment in
TNI
66

6.3 NPL of national and IBBL
Year 2009 2010 2011 2012
% of national NPL 9.20% 7.30% 6.10% 10.03%
% of IBBL NPL 2.36% 1.77% 2.71% 3.81%
Table 20: NPL of national and IBBL

Figure 6(3): Comparison of Toal NPL of IBBL & Total NPL of National
Interpretation: The graph shows that NPL percentage of IBBL is lower than indusry average in
each year of analysis. This indicates that the credit recovery performance of IBBL better than that of
most other firm in the industry.

9.20%
7.30%
6.10%
10.03%
2.36%
1.77%
2.71%
3.81%
0.00%
2.00%
4.00%
6.00%
8.00%
10.00%
12.00%
2009 2010 2011 2012
% of national NPL
% of IBBL NPL
67

Chapter-7
Findings, Conclusion
&
Recommendations

68

7.1 Findings

The study, Analysis of investment performance of Islami Bank Bangladesh Limited, reveals the
following majors findings.
The deposit collection of IBBL has increased over the years but the growth rate has
fluctuated over the years. The deposit of IBBL as percentage of total national deposit has
decreased over the last three years of analysis and finally it increased in the 4th year.
The investment of IBBL has increased over the years but the the growth rate has
fluctuated over the year. The investment of IBBL as percentage of total national
investment has decreased over the last three years of analysis and finally it increased in
the 4th year.
The investment of IBBL is maximum in the industrial sector and minimum in the
transport sector. They also invest in other sectors like commercial, real state, agriculture
etc.
IBBLs investment under Bai mechanism was 73.12% of total investment in 2013. And
the income is 67.00% from bai mechanism. Income from Share mechanism is increasing
over the year.
IBBL invested low amount in share mechanism.
NPL ratio of IBBL has increased over the last four years. Yet, NPL ratio of IBBL is
lower than industry average.

69

7.2 Conclusion
Islami Bank Bangladesh Limited has made a revolution in the conventional banking especially in
the field of bank investment. IBBL became successful in proving that bank investment (lending) can
be made properly, profitably following profit & loss sharing concept with abolishing interest, and
which is also beneficial to human being & society. And these all characteristics of bank investment
are absolutely absent in case of conventional bank. Banking without interest seems feasible as far as
it goes. But it still awaits a fair trial without which it will be dogmatic to pass any judgment on it.
Practical experience is therefore no guide as to its success or failure. The rate of return can fall to
zero as envisaged in Islam only in an ideal society in which future can be perfectly fore-seen and
social security prevails from cradle to grave. In this case even on single country can unilaterally
work out the system because of closer international ties and inter- dependence. Therefore, such a
system pre-supposes an international community imbibed with a sense of cooperation and universal
brotherhood and sprit of Islam.

70

7.3 Recommendations:
The following recommendations can be suggested from the analysis of investment performance of
Islami Bank Bangladesh Limited.
IBBL should introduce new deposit product like Mudaraba Shikkha Deposit of Shahajalal
Islami Bank to maintain and increase its trend of deposit.
In order to maintain and increase the trend of investment, IBBL can open new branch in the
rural area. This will also increase the deposit of IBBL.
IBBL invested more in Bai mechanism. IBBL should increase its investment under Share
mode & HPSM.
IBBL usually does not invest in rural areas but they should invest in those areas for rural
development.
IBBL should consider the five Cs regarding borrower before selection of the client to
reduce the classified investment.
IBBL should properly monitor the behavior of borrower to ensure the use of loan for the
specified purpose.

71

7.4 Bibliography
Islami bank Banladesh Limited,Annual Report 2010
http://www.bb.org.bd/pub/annual/anreport/ar1112/index1112.php
http://www.bb.org.bd/pub/annual/anreport/ar1213/index1213.php
Handout provided by IBTRA.
Investment mechanism book of IBBL.
www.islamibankbd.com

72

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