Analysis of Investment Activities of Islami Bank Bangladesh Limited : A Case Study on Shyampur Branch Job Tips News
1.1Introduction of the Study
It is obligatory to undertaken an extensive study to prepare a report for the student of Bachelor of Business Administration, who are desirous to the successfully completion of their BBA program. As part of the program, we are highly proud to join with Islami Bank Bangladesh Limited as internee and selecting topic Analysis of Investment Activities of Islami Bank Bangladesh Limited: A Case Study on Shyampur Branch We had work there in several departments, but we had to select an area of study in which we can make detail study and present us understanding in the report. This report Investment Activities of IslamiBank Bangladesh Limited (IBBL) has been prepared to fulfill the partial requirements of BBA program as a mean of Internship program. While preparing this report, we had a great opportunity to have depth knowledge of all the banking activities of Islami Bank Bangladesh Limited. It is an opportunities for the students to acquire an in depth knowledge about the practical.
1.2 Origin of the Study
As a part of the internship program of BBA course requirements,we were assigned to do us internship in Islami Bank Bangladesh Ltd, shyampur Branch, Dhaka for the period of two months starting from October 4 to November 25, 2015. Our report ison theAnalysis of Investment Activities of Islami Bank Bangladesh Limited : A Case Study on Shyampur Branch.
1.3 Significance of the Study
Education will be the most effective when theory and practice blends. Theoretical knowledge gets its perfection with practical application and the internship is designed to bridge the gap between the theoretical knowledge and real applications. The prime reason of this study is to become familiar with the practical business world and to attain practical knowledge about the overall Banking and Corporate world, which is so much essential for all.
1.4 Scope of the Study
As we appointed for two month internship period in IslamiBank Bangladesh Limited (IBBL), We have worked in the different department of IBBL at manybranch, specially Local Office. This Analysis of Investment Activities of Islami
Bank Bangladesh Limited : A Case Study on Shyampur Branch.
An Overview of Islami Bank Bangladesh Limited (IBBL).
Investment and services process of Islami Bank Bangladesh Limited (IBBL).
Modes Wise Investment performance of Islami Bank BangladeshLimited (IBBL) .
Therefore our report based on all activities of investment services department. We have mainly used secondary data which is available to us.
1.5 Objectives of the Study
1.5.1 Main Objectives
The main objective of this study is to analyze Investment Activities of Islami Bank Bangladesh Limited (IBBL).
1.5.2 Specific Objectives
The objectives of the study is to gain practical exposures about investment Activities& procedure of IBBL. In line with the broad objectives, the detailed objective of the study may be spelled out as follows:
to find out the investment policies, procedure activities and schemes of Islami bank Bangladesh Limited;
to analyze the trend of investment performance of IBBL; and
to identify the problem areas and raise possible recommendations for improving the performance of investment activities of IBBL.
1.6.1 Research Design
This study has prepared on the basis of given information. So this report is descriptive type of research but some analytical description is also included here.
1.6.2 Source of Information
For the Analysis of Investment Activities of Islami Bank Bangladesh Limited : A Case Study on Shyampur BranchI have mainly used secondary data. Beside this I am also collect some information by taking expert opinion from the officers and direct observation while I am doing our internship program at the bank.
1.6.3 Data collection Procedure
This study is based on both primary and secondary data. This secondary data are collected for five years period from 2010-2014.
Information conversation with concerned officers.
Practical work experience.
In depth study of selected cases.
Annual report of IBBL.
Relevant books, Research papers, Newspapers and Journals.
Internet, Websites and various study selected reports.
1.6.4 Data Analyzing & Reporting
For reporting Iam used several graph, table, chart and for analyzing trend analysis and ratio analysis had been used. For this report I have use to some computer software such as Microsoft Word & Microsoft Excel.
1.7 Time Schedule of the Study
The time schedule of the study was only three months, which is not adequate for conducting such a vast research work. But proper planning and proper utilization of available time is was possible to complete the internship in this short span of time. The allocation of time slice for various operations in preparing this report is shown below:
Description of Work Allocated Time Frame
Data Collection 30 days
Conceptual Review 15 days
Analysis of data & Findings 30 days
Report Preparation 15 days
Total 90 days
Source : Own created
1.8 Limitations of the Study
Some of the limitations we have face while preparing this report. Apart from this the following limitations of the study can be mentioned-
Inadequate Data:Lack of available information about the Islami Bank Bangladesh Limited the unwillingness of the busy key persons, necessary data collection became hard. The employees are extremely busy to perform their duty.
Lack of Experiences: Lack of Experiences has acted as constrains in the way of meticulous exploration on the topic. Being a member of the organization, it was not possible on our part to express some of the sensitive issues.
Website Facility:Islami Bank Bangladesh Limited Website is not much rich to collect data that’s why it makes sometimes difficult to collect information .
Profile of Islami Bank Bangladesh Limited
2.1 History of Islami Bank Bangladesh Limited
In the late seventies and early eighties, Muslim countries were awoken by the emergence of Islami Bank which provided interest free banking facilities. There are currently more than 614 interest free institutions all over the world. Today Islami Bank not only operates in almost all Muslim countries, but have extended their wings to the western world to serve both Muslim and non Muslim customers. In case of Islami Banking, the establishment of Mitghamar Local Savings Bank in 1963 is said to be a milestone for modern Islami Banking.
In 1974, Bangladesh signed the Charter of Islamic Development Bank and committed itself to reorganize its economic and financial system as per Islamic Shariah. In 1978, Bangladesh recommended in Islamic Foreign Minister Conference in Senegal towards systematic efforts to Islamic Banking. In 1980, Foreign Minister Conference in Pakistan where Bangladesh Foreign Minister Prof. ShamsulHoq, proposed for taking steps for Islamic Banking. Further, Bangladesh Bank sent representation abroad to study Islamic Banking System.
In 1981, President of the Peoples Republic of Bangladesh addressed the 3rd Islamic Summit Conference held at Makkah and Taif suggested, ''The Islamic countries should develop a separate banking system of their own in order to facilitate their trade and commerce. ''In 1982, IDB visited Bangladesh for study. They found contributions done by Islamic Economics Research Bureau (IERB) and Bangladesh Islamic Bankers Association (BIBA); they mobilized the seminars, public opinion through symposia & workshop. Professional activities reinforced by Muslim Businessman Society (now reorganized as Industrialists and Businessman Association). The body mobilized mainly equity capital for emerging Islamic Bank. Finally, in 1983 Islami Bank Bangladesh Limited (IBBL) came out to take the challenge of doing banking business.
Islami Bank Bangladesh Limited (IBBL) is considered to be the first interest free bank in Southeast Asia. It was incorporated on 13-03-1983 as a Public Company with limited liability under the companies Act 1913. The bank began operations on March 30th, 1983, with major share by the foreign entrepreneurs. IBBL is a joint venture multinational Bank with 63.92% of equity being contributed by the Islamic Development Bank and financial institutions. The total number of branches in 2015 stood at 285.
To establish Islamic Banking through the introduction of a welfare oriented banking system and also ensure equity and justice in the field of all economic activities, achieve balanced growth and equitable development in through diversified investment operations particularly in the priority sectors and less developed areas of the country. To encourage socio-economic upliftment and financial services to the loss-income community particularly in the rural areas.
Our vision is to always strive to achieve superior financial performance, be considered a leading Islamic Bank by reputation and performance.
Our goal is to establish and maintain the modern banking techniques, to ensure soundness and development of the financial system based on Islamic principles and to become the strong and efficient organization with highly motivated professional, working for the benefit of people, based upon accountability, transparency and integrity in order to ensure stability of financial systems.
We will try to encourage savings in the form of direct investment.
We will also try to encourage investment particularly in projects which are more likely to lead to higher employment.
• 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.
• Trust in Almighty Allah
• Strict observance of Islamic Shariah
• Highest standard of Honesty, Integrity & Morale
• Welfare Banking
• Equity and Justice
• Environmental Consciousness
• Personalized Service
2.6Company Profile of IBBL
Name of the company Islami Bank Bangladesh Limited
Legal Status Public Limited Company
Company Registration Number C- 10589/485 Dated March 13,1983
Tax Payer Identification Number (TIN) 210-200-0887
VAT Registration Number 9015000857
Chairman Eng. MostofaAnowar
Managing Director Mohammed Abdul Mannan
Company Secretary Abu Reza Md. Yeahia
Chief Financial Officer Mohammed NesarUddin, FCA, FCMA
Credit Rating Agency Credit Rating Information and Services Ltd. (CRISL)
M/S.A. Qasem& Co. Chartered Accountants (A Cooperating firm of pricewaterhouse Coopers) Gulshan Pink City Suite # 01-03, Level # 7, Plot # 15, Road # 103, Block –CEN(c) Gulshan Avenue, Dhaka -1212.
M/S. ACNABIN Chartered Accountants (An independent member of BAKER TILLY INTERNATIONAL) BDBL Bhaban (13th Floor) 12, kawran Bazar C/A, Dhaka -1215.
Source: Annual Report 2014
2.7 Features of IBBL
The bank is committed to run all its activities as per IslamiShariah. IBBL through its steady progress and continuous success has earned the reputation of being one of the leading private sector banks of the country. The features of IBBL is as follows -
All its activities are conducted on interest-free banking system according to Islamic Shariah.
Establishment of participatory banking instead of banking on debtor-creditor relationship.
Investment is made through different modes permitted under Islamic Shariah.
Investment income of the Bank is shared with the Mudaraba deposits according to a ratio to ensure reasonable fair rate of return on their depositors.
Its aims are to introduce welfare-oriented banking system and also to establish equity and justice in the field of all economic activities.
It extend co-operation to the poor, the helpless and the low-income group for their economic development.
It plays a vital role in human resource development and employment generation.
2.8 Functions of IBBL
Islami Bank Bangladesh Limited is performing the following functions:
To maintain all types of deposit accounts.
To make investment.
To handle foreign exchange business.
To extend other banking services.
To conduct social welfare activities through Islami Bank Foundation.
2.9 Name and Designation of IBBL ShyampurBranch Employees
SL. NO Name Designation
01 Ahmad Ali Head of Branch
02 JainulAbedin Senior Principal Officer
03 Md. Abdul Kader Investment Incharge
04 B. M. SaidurRahman Principal Officer
05 AbulKalam Kahn Principal Officer
06 Md. Abdul Majed Principal Officer
07 Shah Alam Senior Officer
08 RajiUddin Ahmed Senior Officer
09 Umme Salma Alam Senior Officer
10 Moniruzzaman Khan Senior Officer
11 Shah Jamal Senior Officer
12 Din Islam Sarkar Office Gr. II
13 MizanurRahman Office Gr. II
14 Harun Or Rashid Office Gr. II
15 IkramulHoqueDewan A/O (Gen)
16 Dewan Sultana Jomader
17 Mr. Motin Cash Sorter
Source : IBBL Shyampur Branch
2.10 Five Years Financial Highlight of Islami Bank Bangladesh Limited
Islami Bank Bangladesh Limited
As at 31 December 2010-2014 (Amount in Taka)
Particulars 2014 2013 2012 2011 2010
Cash 6,770,218,585 6,636,972,108 5,348,163,400 5,860,103,625 5,002,561,855
Cash in Hand 1,550,160,241 1,294,274,237 1,341,438,945 1,585,554,764 1,713,064,194
Balance with Bangladesh Bank and its agent Bank 5,220,058,344 5,342,697,871 4,006,724,455 4,274,548,861 3,289,497,661
Balance with other Banks and financial institutions 5,366,014,413 5,366,014,413 285,958,697 350,941,308 1,121,909,129
In Bangladesh 4,976,518,084 33,337,210 2,856,213 6,930,615 800,727,487
Outside Bangladesh 389,496,329 396,538,734 283,102,484 344,010,693 321,181,642
Money at call and short notice - - 329,700,000 29,900,000 30,000,000
Investment 22,894,749,808 18,591,127,858 22,502,481,805 11,188,289,669 14,455,780,134
Government 22,735,889,054 18,429,298,854 18,429,298,854 11,091,865,330 14,381,918,295
Others 158,860,754 161,829,004 158,412,304 96,424,339 73,861,839
Loans and Advances 54,010,287,476 48,672,687,127 39,451,355,571 37,141,342,619 28,477,407,266
Loans, cash credit, over draft etc. 49,384,251,667 44,372,359,512 36,289,189,482 33,308,029,435 25,298,004,729
Bills purchased and discount 4,626,035,809 4,300,327,615 3,162,166,089 3,833,313,184 3,179,402,537
Fixed assets including land, building furniture and fixtures 2,762,228,892 2,798,141,777 1,088,418,582
Other Assets 5,520,848,031 4,228,815,180 2,840,664,075 2,698,386,497 2,758,688,987
Non Banking Assets 93,580,592 94,202,809 99,256,359 109,688,573
Total Assets 97,417,927,797 81,451,822,803 81,451,822,803 58,444,332,118 52,860,332,730
LIABILITIES AND CAPITAL
Borrowings from other Banks,
Financial Institutions and Agents 7,229,331,894 206,875,583 1,176,417,193 225,086,084 2,899,505,333
Deposits and other accounts 72,152,375,394 65,868,030,947 59,387,263,182 59,387,263,182 43,586,356,057
Mudaraba savings deposits 183,125,942,453 155,191,605,056 129,155,650,546 109,362,258,451 852,123,694,865
Fixed deposits 19,969,079,718 15,130,072,230 14,037,133,261 12,164,269,906 12,164,269,906
Other deposits 1,602,866,184 2,126,097,243 1,821,156,402 1,929,101,150 1,276,931,457
Other liabilities 8,402,189,838 6,766,076,457 5,175,368,351 3,713,428,714 1,276,931,457
Total Liabilities 87,783,897,126 72,840,982,987 65,739,048,726 54,755,489,818 50,406,775,571
Source : IBBL Annual Report
2.11 SWOT Analysis of IBBL
Every organization is composed of some internal strengths and weaknesses and also has some external opportunities and threats in its whole life cycle.
• IBBL provides its customer excellent and consistent quality in every service.
• IBBL is a financially sound company.
• IBBL utilizes state of the art technology to ensure consistent quality and operation.
• IBBL provides its works force an excellent place to work.
• IBBL has already achieved a good-will among the clients.
• IBBL has a research division.
• IBBL lacks well-trained human resource in some area.
• IBBL lacks aggressive advertising.
• The procedure of credit facility is to long compare to other banks.
• Employees are not motivated in some areas.
• Emergence of E-banking will open more scope for IBBL.
• IBBL can introduce more innovative and modern customer service.
• Many branches can be open in remote location.
• IBBL can recruit experienced, efficient and knowledgeable work force as it offers good working environment.
• The worldwide trend of mergers and acquisition in financial institutions is causing problem.
• Frequent taka devaluation and foreign exchange rate fluctuation is causing problem.
• Lots of new banks are coming in the scenario with new service.
3.1 Definition of Bank
A bank is a financial institution and a financial intermediary that accepts deposit and channels those deposits into leading activities, either directly by loaning or indirectly through capital markets. A bank together customers that have capital deficits and customers with capital surpluses.
Due to their influential status within the financial system and upon national economies, banks are highly regulated in most countries. Most nations have institutionalized a system known as fractional reserve banking in which banks hold only a small reserve of the funds deposited and lend out the rest for profit. They are generally subject to minimum capital requirements based on an international set of capital standards known as the Basel Accords.
3.2 History of Banking Sector of Bangladesh
The formally know State Bank of Pakistan was renamed as Bangladesh Bank right after Bangladesh’s independence. The Bangladesh Bank automatically became official foreign exchange reserve institute. It was too accountable for currency control, monitoring exchange and credit control.
In the early 1970s, the government decided to permit foreign banks to continue their business and nationalize the local banks. In the very decade of 1970s, the primary concern of the government was to develop the country’s agriculture industry. In the mid 1980s, the government adopted new polices for recovery. It didn’t work. Government owned banks continued to fail on recovering the loans. In the 1990s, many private banks started to emerge. Local group of companies became aggressive in investment so the money flow was rather big. Bangladesh bank played key role in managing these private banks with modern outlook. As consciences the banking sectors grow many folds.
3.3 Definition of Conventional Bank
1.“We can define a bank as and institution whose debts are widely accepted in settlement of other peoples’ debt to each other.” -Sayers.
2. “A commercial bank is dealer in capital or more properly a dealer in money. He is intermediate party between the borrower and the lender. He borrows from one party and lends to another and the difference between the terms at which he borrows and those at which he lends from the source of his profit.”- Prof. Gilbert.
3.4Types of Bank
There are various types of banks. The necessity for the variety among these banks is because each bank is specialized in their own filed. Each bank has its own principles and policies. Different rates of interest are also noted among these banks. All these banks are listed as below :
Savings Bank : These banks are suited for employees with a monthly salary. Low waged people may open an account in the savings bank.
Commercial Bank: These banks collects money from people in various sectors and gives the same as a loan to business men and make profit in interest these business men pay.
Islamic Bank : These banks are based on the principles of the religion Islam. There are no interests for loans acquired from this bank. Service charges may apply.
Industrial Development Bank: These banks are committed towards enhancing the growth of industries by providing loans for a very long period of time.
Land Development’s Bank: These banks promote growth in the food sector, by giving loans to farmer at a relatively lower interest rate. The loan is usually gives on the basis of land. If a farmer has lots of agricultural fields then the more will be the loan provided.
Mortgage Bank: These banks are specialized in providing mortgage loans alone. In order to sell loans they depend solely on the secondary market.
Co-operative Bank: co-operative banks as the name suggest gets money from the general community without any bias and provide loans to all sections of people in the neighborhood. Their motto is not profit alone, but service.
Exchange Bank: these banks will be available in more than a single country. They provide service for the buying and selling of gold and silver, transaction will be in foreign currencies.
Consumer Bank: these are consumer friendly banks; they encourage the consumer in buying commercial product and provide options for easy repay of the loan amount.
Community Development Bank: These banks provide services to the community; where there has been nothing or very little development over the years.
Postal Development Bank: These banks are oriented with postal services, people save money for a defined period of time and are paid with standard interest rate.
Private Bank: These banks are not for the general public or community. They serve entirely for private personnel’s assets and transactions alone.
Offshore Bank: They are also private banks except that they have little tax to pay for their transaction; there is very little regulation for this bank.
Ethical Bank: As the name implies ethical banks promote candid transaction between various customers of the bank. Policies and rules are transparent in nature.
Internet Bank: Provides banking facilities only via internet. There will be no physical contact with the bank. All transaction are permitted only through online.
Investment Bank: These banks are pertinent to large organizations investment ventures across the industry. They provide advice in the investments and promote corporate transactions.
Merchant Bank: These banks exist for a long time. They promote investing in organizations that reap huge benefits for a long time rather than new organizations.
Universal Bank: These banks have a wide spectrum of financial assistances to provide. Insurance to stock, they promote everything across all around the globe.
The above are some of the types of banks around the globe. They may be further classified according to their role and designation.
3.5 What is Investment
Investment 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.
3.5.1 Investment Definition in terms of Finance
In finance, investment refers to the purchasing of securities or other financial assets from the capital market. It also means buying money market or real properties with high market liquidity. Some examples are gold, silver, real properties, and precious items.
Financial investments are in stocks, bonds, and other types of security investments. Indirect financial investments can also be done with the help of mediators or third parties, such as pension funds, mutual funds, commercial banks, and insurance companies.
3.6Why People Invest
A few people may stumble into financial security. But for most people, the only way to attain financial security is to save and invest over a long period of time. You just need to have your money work for you. That’s investing.
There are two ways your money can work for you:
Your money earns money. Someone pays you to use your money for a period of time. You then get your money back plus “interest” or, if you buy stock in a company that pays “dividends” to shareholders, the company pays you a portion of its earnings on a regular basis. Now your money is making an “income”.
You buy something with your money that could increase in value. You become an owner of something that you hope increases in value over time. When you need your money back, you sell it, hoping someone else will pay you more for it.
Compound interest is a key aspect of investing. With compound interest, you earn interest on the money you save and on the interest that money earns. Over time, even a small amount of savings can add up to big money and help you achieve your financial goals.
Sweet: If you buy a $1 candy bar every day, it adds up to $365 a year. Put that $365 into an investment that earns 5% a year, and it would grow to $465.84 by the end of five years. By the end of 30 years, you would have $1,577.50. That’s the power of “compounding”.
All investments involve some degree of risk. If you intend to purchase securities such as stocks, bonds, or mutual funds, it's important that you understand before you invest that you could lose some or all of your money.
Unlike deposits at FDIC insured banks and NCUA insured credit unions, the money you invest in securities is not federally insured. You could lose your principal, which is the amount you've invested. That’s true even if you purchase the securities through a bank.
The reward for taking on risk is the potential for a greater investment return. If you have a financial goal with a long-term horizon, you may make more money by carefully investing in higher-risk assets, such as stocks or bonds. On the other hand, investing solely in cash investments may be appropriate for short-term financial goals. The principal concern for individuals investing in cash equivalents is inflation risk, which is the risk that inflation will outpace and erode returns.
3.7 Types of Investment
The types & modes of Investment so permitted is clearly indicated in the Bank’s Planning such as Working capital, Trade Finance, Securities Investment, Agriculture, Term Investment for project, Term Investment for Real Estate, Housing, Transport, House Hold Durable (Consumers Credit) and Rural Development Scheme etc. which must be followed by all concern.
3.7.1 Investment in IBBL
Investment is the action of deploping funds with the intention and expectation that they will earn a positive return for the owner. Funds may be invested in either real assets or financial assets. When resources are used for purchasing fixed and current assets in a production process or for a trading purpose, then it can be termed as real investment. The establishment of a factory or the purchase of raw materials and machinery for production purposes are examples in point. On the other hand, the purchase of a legal right to receive income in the form of capital gains or dividends would be indicative of financial investments. Specific examples of financial investments are deposits of money in a bank account, the purchase of Mudaraba Savings Bonds or stock in a company. Ultimately the savings of investors in financial assets are invested by the respective company into real assets in the form of the expansion of plant and equipment. Since Islam condemns hoarding savings and a 2.5 percent annual tax (Zakat) is imposed on savings, the owner of excess savings, if he isunable to invest in real assets, has no option but to invest his savings in financial assets.
When money is deposited with an Islamic Bank, the bank, in turn, makes investments in different forms approved by the Islamic Shariah with the intent to earn a profit. Not only a bank, but also an individual or organization can use Islamic modes of investment to earn profits for wealth maximization. Some popular modes of Islamic Investment are discussed below. A comparison is also attempted between the Islamic Modes of Finance and these of conventional banks.
It will also include short, medium and long-term investment advances. It is important to point out that investment in shares and securities has not been included in the term investment because Islamic banks cannot invest frequently in shares and securities due to Shariah bindings. Islamic banks cannot invest in interest related business or securities, which are the main criteria of present financing avenues. This specific definition of investment thus needs to be clearly understood while evaluating the findings of the study.
The special feature of the investment policy of the bank is to investment on the basis of profit-loss sharing system in accordance with the tenets and principles of Islamic Shari’ah. Pursuant to the Investment Policy adopted by the Bank, a “5 years Perspective Investment Plan” has been drawn-up from the year 2010 to 2014 and put into implementation.
3.9Determinants of Investment
Expectations:As the expectations change in a way that increases the expected return from investment, the investment demand curve shifts to the right. Similarly, expectations of reduced profitability shift the investment demand curve to the left.
The Level of Economic Activity’s :Firms need capital to produce goods and services. An increase in the level of production is likely to boost demand for capital and thus lead to greater investment. Therefore, an increase in GDP is likely to shift the investment demand curve to the right.
Costs :Firms have a range of choices concerning how particular goods can be produced. A factory, for example, might use a sophisticated capital facility and relatively few workers, or it might use more workers and relatively less capital. The choice to use capital will be affected by the cost of the capital goods and the interest rate, but it will also be affected by the cost of labor. As labor costs rise, the demand for capital is likely to increase.
Interest Rates:Thenegative relationship between interest rates and investment. This relationship applies to all forms of investment: higher interest rates tend to reduce the quantity of investment, while lower interest rates increase it.
Technological Changes:The implementation of new technology often requires new capital. Changes in technology can thus increase the demand for capital. Advances in computer technology have encouraged massive investments in Business.
• Interest Rate:The investment function is depend on interest rates. More investment occurs when interest rates are lower and less investment occurs when interest rates are higher. Lower interest rates make all capital projects more profitable and higher interest rates make all capital projects less profitable.
• Elasticity : The elasticity of the investment function determines how effective a change in interests rates is in stimulating investment. The more elastic, the more responsive spending is to small changes in the interest rate. The less elastic, the less responsive spending is to even large changes in the interest rate.
• Shifts :Shift of investment function are caused by income and expectations. When income increases, businesses run out of excess capacity and must buy more plant and equipment to accommodate more production.
Analysis and Findings
4.1 Investment Modes of IBBL
Credit department of IBBL actually invests its money in various sectors of the economy through different modes permitted by shariah and approved by Bangladesh Bank. The modes of investment are as follows-
Source: Annual Report 2014 (IBBL)
4.2 Objectives and Principles
The special features of the investment policy of Islami Bank is to invest based on profit-loss sharing system in accordance with the tenets and principles of Islamic Shariah. Earning of the profit is not the only motives and objectives of the Islamic Bank investment policy rather emphasis is given in attaining social good and in creating employment opportunities.
The Objectives and Principles of Investment operations of the Bank are
To invest fund strictly in accordance with the principles of Islamic shariah.
To diversify its investment portfolio by size of investment portfolio by sectors (public & Privets), by economic purpose, by securities and by geographical area including industrial, commercial & agricultural.
To ensure mutual benefit both for the bank and the investment client by professional appraisal of investment proposals, judicious sanction of investment, close and constant supervision and monitoring thereof.
To make investment keeping the socio economic requirement of the country in view.
To increase the number of potential investors by making participatory and productive investment.
To finance various development schemes for poverty alleviation, income and employment generation with a view to accelerate sustainable socio-economic growth and upliftment of the society.
To invest in the form of goods and commodities rather than give out cash money to the investment clients.
To encourage social upliftment enterprises.
To ensure avoid all the investment forbidden by the islamishariah.
The bank extends investment under the principles of Bai-murabaha, Bai-Muazzal, Hire Purchase underShirkatulMelk and Musharaka.
4.3IBBL Shyampur Branch Investments Position 2015
Fig. in Taka (Actual)
Classified Loan 16,06,04,478.03
Source :IBBL Shyampur Branch
4.4 Investment Policy of IBBL
Investment policy of Islamic Bank and non Islamic Bank are fully different, the investment policies of Islamic Bank are:
Strict observance of Islamic shariah principles.
Investment to national priority sectors.
Diversified investment portfolio: Diversification by size, sector, geographical area, economic purpose, securities and mode of investment.
Preference to short-term Investment.
Preference to investment of small size.
To ensure safety & security of investments.
To look profitability of investments.
To give support to government denationalization industrial program.
Investment to trade and commerce sectors.
Investment to Foreign Trade (Import & Export).
Exploration of the possibility of investment in the existing Money & Capital Market and help organization of Islamic Money &Capital Market.
4.5 Credit Recovery
Days past Due Collection Action
1-14 Letter, Follow up & persuasion over phone
15-29 1st Reminder letter & serial no. 1 follows
30-44 2nd reminder letter + single visit
45-59 3rd reminder letter Group visit by term member Follow up over phoneLetter to Guarantor, Employer, Reference all above effort followsWarning on legal action by next 15 days
60-89 Call up loanFinal Reminder & serve legal noticeLegal proceeding beingRepossession starts
90 and above Telephone calls/ Legal proceeding continue Collection effort continues by officer & agentLetter to different banks/ Association
Source : IBBL Annual Report
Details 2013 2014 Result
Advance 12289.12 7954.56 Decreasing
Import Business 13152.50 19260.01 Increasing
Export Business 10088.30 15124.60 Increasing
Investment 1419 2344.073 Increasing
Dividend 14% 25% Increasing
Source : IBBL Annual Report
Net profit after tax (NPAT) : Profit available to the common shareholders of the company Book Value Per Share (BVPS): Book Value / Number of Outstanding common stocks Return on Asset (ROA): Net Profit after tax / Average Asset Return on Equity (ROE): Net Profit after Tax / Average Equity frees Float: % of total shares not owned by sponsors/ Directors, and Govt.
4.8 Policy Objectives
To ensure compliance of Shariah principles meticulously in all Investment operations.
Strict adherence to Bangladesh Bank’s policy guidelines and usual norms & practices of banking.
Strict compliance of Bank’s Policy Guidelines, Manuals and Instructions given from time for its Investment operations.
Improve quality of investment portfolio by-
(i) Keeping non-performing assets as low as possible.
(ii) Arresting new investment becoming overdue & classified.
Investment facilities are to be considered solely on the viability of the business/enterprise/ project etc. having adequate cash flows to adjust the investments and management capacity of the Client.
Evaluate Investment risk before sanctioning, which may hamper generation of the projected cash flows of the client and might delay or hinder repayment of Bank’s main thrust for ensuring repayment of the investment and receiving early warning for taking timely corrective measures, In fact, monitoring is the beauty of the Investment Risk Management.
Price the investment on the basis of investment pricing modules of the Bank focusing on risk rating of the Investment client.
Maximizing Bank’s earnings from investment portfolio.
4.9Graphical Presentation & Discussion of Investment
Particulars Year (Taka in Millions)
2010 2011 2012 2013 2014
Increase or Decrease
Growth 14,455.78 11,188.29
Source : IBBL Annual Report
Interpretation:During the five years (2010-2014) of study the total growth of investment of Islami Bank Bangladesh Limited were on average 30%. In appendix table, Investment ranges from 14,455.78 to 22,894.75 million maintaining Tk. 17,926 million on an average with a standard deviation of Tk. 5,087.09 million per year. Moreover, significant changes have occurred in investment in each year. As here, FY2010 is the base year, so the changes in investment have been increased from FY2011 to FY2014. In FY2011 the highest increased in investment have been occurred compared with the other FY but in FY 2011 the highest decreased in investment. In addition, each FY the percentage change of investment is increasing only FY 2013 percentage changes of investment slightly decrease. Only remaining FY2013, it is very clear that an increasing upward trend is there from FY 2011 to FY 2014. So, in each year bank’s investment is increasing which makes their revenue more prosperous.
4.10 Salient Features of the Policy
The salient features of the Investment policy are outlined below
Strict observance of the Islamic Shariah Principles.
Observance of the legal Investment Limit of the Bank.
Observance of Legal Investment Limit per client.
Optimum utilization of investable fund.
Profitability, safety and security of the investments. Satisfactory return on investments.
Investments at minimum possible risk e.g. default risk and liquidity risk etc.
Liquidity of investments.
Conform to Central Bank’s investment restrictions/priority.
Preference to short-term investments.
Preference to the investments for small amount/size.
Under Bai Mechanism banks are invested their money in some different ways. Such as :
4.11.1 Bai-Murabaha(Contact Sale on profit)
Bai-Murabaha may be defined as a contract between a Buyer and a Seller under which the Seller sells certain specific goods permissible under Islamic Shariah and the Law of the land to the Buyer at a cost plus agreed profit payable in cash or on any fixed future date in lum sum or by installments. The profit marked-up may be fixed in lump sum or in percentage of the cost price of the goods.
4.11.2 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 buy same from the bank on Murabaha, i.e. cost plus agreed upon profit.
It is permissible to make the promise binding upon the client to purchase from the bank, that is, he is to satisfy the promise or to indemnify the damages caused by breaking the promise without excuse.
It is also permissible to take cash / collateral security to guarantee the implementation of the promise or indemnify the damages.
Stock availability of goods is a basic condition for 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 bear the consequences of any damages or defects, unless there is an agreement with the Client releasing the bank of the defects, that means, if the goods are damaged, bank is liable, if the goods are defective, (a defect that is not included in the release) the Bank bears the responsibility.
The Bank must deliver the specified Goods to the Client on specified date and at specified place of delivery as per Contract.
The 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 behalf. The authorization must be in a separated contract.
4.12Bai-Mujjal (Deferred Sale)
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 lum sum or within a fixed period by fixed installments. The seller may also sell the goods purchased by him as per order and specification of the Buyer.
In this Bank, Bai-Muajjal is treated as a contract between the Bank and the Client under which the Bank sells to the Client certain specified goods, purchased as per order and specification of the Client at an agreed price payable within a fixed future date in lump sum or by fixed installments.
4.12.1 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 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 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.
4.13Bai-Salam (Advanced Purchase)
Bai-Salam may be defined as a contract between a Buyer and a Seller under which the Seller sells in advance the certain commodity /product permissible under Islamic Shariah and the law of the land to the Buyer at an agreed price payable on execution of the said contract and the commodity /product is/are delivered as per specification, size, quality, quantity at a future time in a particular place. In other words, Bai-Salam is a sale whereby the seller undertakes to supply some specific Commodity or Product to the buyer at a future time in exchange of an advanced price fully paid on the spot. Here the price is paid in cash, but the delivery of the goods is deferred.
4.13.1 Important Features
Bai-Salam is a mode of investment allowed by Islamic Shariah in which commodity or product can be sold without having the said commodity or product either in existence or physical or constructive possession of the seller. If the commodity or product is ready for sale, Bai-Salam is not allowed in Shariah. Then the sale may be done either in Bai-Murabaha or Bai-Muajjal mode of investment.
Generally, Industrial and Agricultural products are purchased or sold in advance under Bai-Salam mode of Investment to infuse finance so that production is not hindered due to shortage of fund/cash.
It is permissible to obtain collateral security from the seller client to secure the investment from any hazards viz. Non-supply or partial supply of commodity or product, supply of low quality commodity or Product etc.
It is also permissible to obtain Mortgage and Personal Guarantee from a third party as security before the signing of the Agreement or at the time of signing the Agreement.
Bai-Salam on a particular commodity or product or on a product of a particular field or farm cannot be affected. [For Agricultural Product(s) only].
Istishna’a is a contract between a manufacturer/seller and a buyer under which the manufacturer/seller sells specific product(s) after having manufactured, permissible under Islamic Shariah and Law of the Country after having manufactured at an agreed price payable in advance or by installments within a fixed period or on/within a fixed future date on the basis of the order placed by the buyer.
In Istishna’a contract, the buyer is called al-mustasni, the seller al-sani and the goods or the subject matter of the contract al-masnoo.
4.14.1 Islami Bank can utiliseIstisna'a in the following ways
Islami Bank may buy a commodity under Istishna'a contract and then sell it on cash or deferred payment basis to a Client of the Bank without receiving prior order from the Client.
Islami Bank in the capacity of a seller may receive order from a Client for manufacturing and supplying certain specified goods under an Istishna contract and then enter into a Parallel Istisna contract in the capacity of a buyer with a Manufacturer for having the Products manufactured by him i.e. the Islami Bank may obtain an order from a buyer to supply goods under Istishna’a and by a Parallel Istishna’a contract may have the goods made by a Manufacturer by an order.
Bank may pay the price to the Manufacturer of the Products in advance or by installments or on deferred payment basis. They also may receive price of the Products from the ultimate buyer in advance or by installments or on deferred payment basis.
4.14.2 The obligations of Islami Bank as a Sellerin the first contract and as a Buyer in parallel contract are as under:
The Islami Bank as a seller in the first contract will remain solely responsible for the execution of its obligations as if the parallel contract is non-existent. Hence, Islami Bank in the first contract would remain liable for any default, negligence or breach of contract ensuing from the parallel contract.
In the parallel Istishna’a, the Manufacturer is accountable to Islami Bank in the way and manner by which he performs his obligations. He has no direct legal relationship with the ultimate buyer in the first contract.
The second Istishna’a is a parallel contract, but not a contingent transaction on the first contract. Legally speaking they are different contracts with respect to rights and obligations.
Mudaraba is a partnership in profit whereby one party provides capital and the other party provides skill and labour. The provider of capital is called Shahib-al-maal while the provider of skill and labor is called Mudarib.
So, Mudaraba may be defined as a contract of partnership where the Shahib-al-maal provides capital to the Mudarib for investing it in a commercial enterprise by applying his labor and endeavor. Both the parties share the profit as per agreed upon ratio and the losses, if any, being borne by the provider of funds i.e. Shahib-al-maal except if it is due to breach of trust i.e. misconduct, negligence or violation of the conditions agreed upon by the Mudarib. If there is any loss incurred due to the reasons mentioned above, the Mudarib becomes liable for that.
220.127.116.11 Types of Mudaraba
Mudaraba Contracts may be divided into 2 types
18.104.22.168.1 Restricted Mudaraba (Al Mudaraba Al Muqayyadah) A restricted Mudaraba (Al Mudaraba Al Muqayyadah) is a contract in which the Shahib-al-maalimpose any restrictions on the actions of the Mudarib but not in a manner that would unduly constrain the Mudarib in his operations.
22.214.171.124.2Mudaraba (Al Mudaraba Al Mutlaqah)
An unrestricted Mudaraba (Al Mudaraba Al Mutlaqah)is a contract in which Shahib- al-maal permits the Mudarib to administer the Mudaraba capital without any restrictions. In this case, the Mudarib has a wide range of trade or business freedom on the basis of trust and the business expertise he has acquired. Such unrestricted business freedom must be exercised only in accordance with the interests of the parties and the objectives of the Mudaraba contract.
126.96.36.199 Mudaraba as a Source of Funds
Mudaraba contracts can also serve as a source of funds for an Islamic bank. When customers deposit money and expect a return, they’re the arbab al mal (the investors), which is the plural form of Rab-al-mal. The bank is the fund manager or working partner the mudarib. The bank invests the depositors’ money according to sharia guidelines.
4.15.2 Musharaka (Partnership)
Musharaka may be defined as a contract of partnership between two or more individuals or bodies in which all the partners contribute capital, participate in the management, and share the profit in proportion to their capital or as per pre-agreed ratio and bear the loss, if any, in proportion to their capital/equity ratio.
In Islami Bank Bangladesh Limited (IBBL), the Bank may take part in a business with its Client(s), where both the Client(s) and the Bank provide capital in fixed proportions, take part in the management of business and share the profit in proportion to their respective capital ratio or at pre-agreed ratio and bear the loss, if any, in proportion to their respective capital/equity ratio.
4.15.3 Ijara Mechanism
Hire Purchase underShirkatulMelk is a Special type of contract that has been developed through practice. Actually, it is a synthesis of three contacts:
2. Ijarah and
These may be defining as follows:
188.8.131.52 ShirkatulMelk :‘Shirkat’ means partnership. ShirkatulMelk means share in ownership. When two or more persons supply equity, purchase an asset and own the same jointly and share the benefit as per agreement and loss in proportion to their respective equity, the contact is called ShirkatulMelk. In the case of Hire Purchase under ShirkatulMelk, IBBL purchase assets to be leased out, jointly with client under equity participation, own the same and share benefit jointly till the full ownership is transferred to the client.
184.108.40.206Ijara : The term Ijara has been derived from the Arabic words “Air” and “Ujrat” which means consideration, return, wages or rent. This is really the exchange value or consideration, return, wages, rent of service f an asset. Ijara has been defined as a contract between two parties, the Hire and Hirer where the Hirer enjoys or reaps a specific service or benefit against a specified consideration or rent from the asset owned by the Hire. It is a hire agreement under which the Hire to a Hirer against fixed rent or rentals hires out a certain asset for a specified period.
220.127.116.11Sale :This is a sale contract between a buyer and a seller under which the ownership of certain goods or asset is transferred by seller to the buyer against agreed upon price paid to be paid by the buyer.
4.16IBBL Investments Income
Profit on Debenture 31,749,560 26,878,148
Dividend on Shares 1,327,905,783 2,523,752,013
Dividend on Preference Shares 450,000,000 -
Discount on 5, 10,15 & 20 years Govt.Bond 845,684 31,300,650
Profit on 25 years Govt. jute bond 14,756,326 18,139,688
Profit on 5,10,15 & 20 years govt. treasury bond 5,450,665,414 5,484,247,385
Discount on Bangladesh bills & treasury bills 1,882,235,607 1,170,451,370
Govt. Treasury Bond (BPC) 1,567,224,825 2,054,506,137
Govt. Treasury Bond (BJMC) 305,091,835 305,930,000
Prime Bank Bond 20,558,065 20,700,000
Mutual Trust Bank Bond 35,457,805 36,295,891
National Bank Bond 22,927,885 18,433,748
BRAC Bank Subordinated Bond 129,043,151 116,452,398
United Commercial Bank Subordinated Bond 28,855,480 41,609,588
One Bank Subordinated Bond 993,151 68,825,342
AB Bank Subordinated Bond - 18,986,302
South East Bank Subordinated Bond - 4,777,397
Orascom Telecom BD Bond 28,894,008 12,459,246
Northern Power Solutions Ltd. Bond 70,403,385 8,831,702
Profit on Reverse REPO 75,199,957 282,133,606
Profit on Sale of Shares 15,673,362 4,961,498
Profit on Sale of Securities 325,950,199 117,035,372
Total 11,140,067,544 13,011,071,419
Source : IBBL Annual Report
The above investment incomes were earned from Dhaka region only.
4.17There are some Special Schemes under Investment
4.17.1 Household Durable Scheme
Islami Bank Bangladesh Limited has introduced Household Durables Investment Scheme which has already created great enthusiasm among the people and received tremendous response from them. Objectives are to assist the service holders with limited income in purchasing household articles such as Furniture, electronic and electronic equipments like television, refrigerator, gas cooker etc.
4.17.2 Investment Scheme for Doctors
A good number or newly graduated doctors from Medical Colleges are unemployed. Many of the medical graduates are waiting for job because the opportunity for Government service is limited. If these young doctors could be self-employed by extending investment facilities, they could make modern facilities available at the door-steps of rural people.
In view of the above facts, Islami Bank Bangladesh Limited has taken the initiative an introduced the Doctors Investment Scheme to ensure modern treatment and medical facilities available to the people through extension of Bank’s investment facilities for self-employment of newly graduated doctors and at the same time extending investment facilities to the established medical practitioners to procure modern and sophisticated medical equipment.
4.17.3 Small Business Investment Scheme
Bangladesh a third-wood developing country is rich in natural and human resources. Inspire of vast possibilities, the majority people of the country live in hardship-below poverty tapped, explored and exploited. Physical labor is their only means of earning. A large segment of this populace is active youth force. Many of them are efficient, intelligent and energetic with initiative & drive and have courage to take risks. But they cannot uplift their socio-economic condition due to poverty, lack of financial support and other required facilities.
4.17.4 Housing Investment Scheme
One of the basic human needs is to have a house to live in. A house is in an abode of peace and happiness. Housing has now become an acute problem in the country, especially in the towns, cities and metropolis. With their limited income, it has become almost impossible on the part of the lower middle class, middle class and sometimes, even for upper middle class to solve their housing problem. To meet this basic human need, Islami Bank Bangladesh Limited is committed to contribute to this end to provide a peaceful and happy.
4.17.5 Real Estate Investment Program
Professionals, Service-holders, Businessmen, Real Estate Developer and other categories of people who are not entitled for availing investment facilities under Housing Investment Scheme, shall be eligible under this program Investment is to be extended to build new houses and for extension/ completion of the house already constructed, commercial building, shopping complex, flat apartment etc.
4.17.6 Transport Investment Program
Under this scheme, investment in being allowed to the existing successful businessmen and potential entrepreneurs in this sector for all types of road and water transport with simple and easy terms and conditions. The bank is also extending investment facilities to multinational companies, established, business houses and well to do officials and professionals for acquisition of private cars, microbus and jeeps.
4.17.7 Car Investment Scheme
Car is considered as on essential mode of transport in the modern society, particularly by a section of the officials, business houses and business executives and established professionals for movement in discharging their duties and responsibilities punctually and efficiently. Ma