Sep 30,2016

This a sample internship report on Analysis of Investment Activities of Islami Bank Bangladesh Limited : A Case Study on Jatrabari Branch

Organization: Islami Bank Bangladesh Limited

Internship Placement: Dhaka

Program: BBA

Executive Summary

This study has been conducted as a partial fulfillment for BBA program of the department of Business Administration under Bangladesh Islami University. The report will give a clear idea about the Analysis of Investment Activities of Islami Bank Bangladesh Limited : A Case Study on Jatrabari Branch. I have completed my internship report using of three months internship knowledge. Due to complete the report, I worked Jatrabari Branch in Islami Bank Bangladesh Limited. In this study I have used primary and secondary data.

This report segmented into five chapters, the first chapter is introduction. It will give an idea about how the report is being prepared and background of the study, objective of the study, scope of the study, methodology of the study, time schedule and limitation of the study. In second chapter I have tried to describe detailed description of the Islami Bank Bangladesh Limited. I have mentioned the history, corporate information, vision, mission, core objective, functions, financial information, and SWOT analysis of the IBBL. In chapter three I have tried to describe the theoretical illustration of the topics of the internship that concepts of bank, types of bank, investment banking, types of investment, and important features of investment. In chapter four I have mentioned the theoretical, analytical and computational part of the report mentioning the problems and sort comings. Here I describe analysis and findings on the investment activity, investment sanction activity, and give some significant financial figure of IBBL. In chapter five I have tried to draw the summary of the recommendation the probable remedy to overcome the problems and conclusion.

IBBL does not sanction investment to all sectors equally as they require, rather it concentrates its investments within some limited fields and categories. Its investment procedure is very difficult. Some of the IBBL employers try to violet Islami Shariah when they deal with investment. There has Chance to submit wrong appraisal and evaluation of investment proposal.

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IBBL plays a vital role in human resources development and employment generation particularly among the unemployed youths. And also Ensures Shariah compliance through regular and effective guidelines of powerful and highly esteemed Shariah council consisting of thirteen members representing Shariah scalars.

Islami Bank Bangladesh Limited should invest all economic sectors for more profit. It also helps to create new employment opportunity. IBBL should make the investment procedure easy and understandable to attract the potential customer. Official at branch level should more careful in compliance with desired Shariah regarding investment. If employees become well trained, the possibility of wrong appraisal and evaluation of investment proposal will be minimized. Overall I have tried to share my practical learning and experiences in the report that I gathered during my internship period and present it in the perfect and right way.

Chapter-One

Introduction

1.1 Introduction of the Study

The special feature of the investment policy of Islamic Banks 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’s investment policy rather emphasis is given in attaining social good and in creating employment opportunities. Investment is the action of deploying funds with the intention and expectation that they will earn a positive return for the owner. Funds may invest in either real assets or financial assets. When resources used for, purchasing fixed and current assets in a production process or for a trading purpose, that it can be termed as real investment. Specific examples of financial investments are deposits of money in a bank account, the purchase of Mudaraba savings bonds or stock in a company. Since Islam condemns hoarding savings and a 2.5 percent annual tax (Zakat) imposed on Savings, the owner of excess savings, if he is unable to invest in real assets has no option but to invest his savings in financial assets.

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

1.2 Objectives of the Study

The objectives of the study are

to analyze the investment activities of Islami Bank Bangladesh Limited;
to identify factors affecting the investment of Islami Bank Bangladesh Limited; and
to assess the recovery process of Islami Bank Bangladesh Limited.

1.3 Scope of the Study

This report is limited to the overall descriptions of the bank, its services, investment activities and its position in the industry. This report emphasizes the sequential activities involved in investment activities provide by Islami Bank Bangladesh Limited. At last the general banking position of the bank in the banking industry based on its last couple of year’s performance.

1.4 Methodology of the Study

The study is performed based on the information extracted from different sources collected by using a specific methodology. This report is analytical in nature. The methodology is mentioned bellow:

Data collection : Data were collected from two sources.

Primary Sources
Secondary Sources

Primary Sources are

Face to face discussion with the respective officers and staffs.
Relevant file study on provided by the officers concerned.
Face to face discussion with different clients of Islami Bank Bangladesh Limited.

Secondary Sources are

Annual Reports (2010-2014) of Islami Bank Bangladesh Limited.
Relevant Text Books, Newspapers and Journals.
Investment manuals of Islami Bank Bangladesh Limited
Internet and various studies Report.
Website of the Islami Bank Bangladesh Limited.
IBTRA Library.

1.5 Time Schedule of the Study

Objective of the practical orientation program is to have practical exposure for the students. My tenure was for twelve weeks only, which was somehow not sufficient. After working whole day in the office it was very much difficult, if not impossible to study again the Theoretical aspects of banking. On the other hand to prepare my internship report I have faced some limitations as follows. It is a common tendency of any departments to keep back their departmental data and information.

1.6 Limitations of the Study

The present study was not out of limitations. From the beginning to end, the study has been completed sincerely and truthful. But some problem arises from conducting in the study. During the study it was not possible to visit the whole area covered by the banks although the financial statements and other information regarding the study have been covered. Some limitations are given stated below.

v Islamic banking system is different than the traditional banking system

v It is very difficult to analyze this issue without proper knowledge about Islamic banking and economy.

v As it is not conventional so it bears some complexity to understand.

v Some words are in Arabic terms that make it difficult.

v Some information is confidential.

v In many cases up to date information is not published.

v As I am student it is not possible for me to collect all the necessary information.

v I had to complete this report within a very short span of time that was not sufficient for investigation.

Chapter-Two

Profile of Islami Bank Bangladesh Limited

2.1 History and Growth of Islamic Banking Around the World

In the 20^th century, the financial and banking world come too acquainted with a new member in the money market known as Islamic Bank with some special features. Islami banking gradually evolved during the last thirty years in some parts of the Muslim world. During 1960’s it was observed that Muslims of Malayasia used to save money primarily for performing Hazz. Such savings mostly kept idle in pillows, under mattresses and floor for avoiding interest, which was unproductive and damaging for the growth and development of economy. For utilizing such saving the Government of Malaysia in 1962 established an interest free financial institution known as “Pilgrims Saving Corporation”. In 1963 Ahmed El Nujjar established a bank at MITGAMAR inegypt by his personal endeavor with a view to bring some development in socio-economic field in the process of Islam. This Mitgram Bank is considered as the Father of Modern Islamic Banking and A.E Niffar is considered as the Father of Islamic Banking System. The tremendous development that the world economy has experienced in the last few decades was contributed by several factors among which, growing institutional supply of loan able funds must have in the human body. Both commercial banks and other development financial institutions provide short, medium, and long-term credits to business persons and entrepreneurs who usually take the lead in ventures of economic development.

Institutional supply of credit has been made possible by a system of financial inter-mediation organized in a way where conventional banks collect small savings from the public by offering them a fixed rate of interest and advancing the loan able funds out of the deposited money to enterprising clients charging relatively higher rates of interest. The margin between these two rates is the banks income. In addition, banks also provide many other services to the public for which it receives service charges. Despite the outstanding contribution of the conventional banking system (interest-based) several ancient and modern economists are critical about its efficiency level. Some economists consider the role of interest in the conventional banking mechanism as a major negative factor that contributes to cyclical fluctuations in the economy (Minsky 1982). More recent concern over the potential instability of the world monetary and financial system was expressed by Maurice Allais, a Noble Laureate in the called for an urgent reform of the World Economic order (Allais 1993, pp13-16). Others vehemently oppose the argument for using rate of interest as a stabilizing tool in the economy (Saud 1980, p. 88). This called for the emergence of a new system of banking capable of tacking new challenges that the present world economy, particularly the financial sector, has been facing. To create a sound economic system all the nations of the world urge to fashion and design their economic lives in accordance with the precepts of Islam. In this regard all the conventional banks are trying to reform their financial structure according to the light of Islam. Now More than 50 Islamic Banks and Islamic institutions have been operating their business all over the world. Besides Muslim countries, Islamic Banks are operating their banking business in non- Muslim countries.

In August 1974, Bangladesh signed the Charter of Islamic Development Bank and committed itself to reorganize its economic and financial system as per Islamic system as per Islamic Shariah. In January 1981, Late President Ziaur Rahman while addressing the 3^rd Islamic Summit Conference held at Makkah and Taif suggested, “The Islamic countries should develop a separate banking system of their own in order to facilitate their trade and commerce.” This statement of Late President Ziaur Rahman indicated favorable attitude of the Government of the People’s Republic of Bangladesh towards establishing Islamic banks and financial institutions in the country. Earlier in November 1980, Bangladesh Bank, the country’s Central Bank, sent a representative to study the working of several Islamic banks abroad. In November 1982, a delegation of IDB Bangladesh and showed keen interest to participate in establishing a joint venture Islamic bank in the private sector. They found a lot of work had already been done and Islamic banking was in a ready form of immediate introduction. Two professional bodies Islamic Economics Research Bureau (ERB) and Bangladesh Islamic Bankers’ Association (BIBA) made significant contributions towards introduction of Islamic banking in the country. They came forward to provide training on Islamic banking to top bankers and economists to fill-up the vacuum of leadership for the future Islamic banks in Bangladesh. They also held seminars, symposia and workshops on Islamic economics and banking throughout the country to mobilize public opinion in favor of Islamic banking. At last, in March 1983, the long drawn struggle to establish an Islamic Bank in Bangladesh become a reality and Islami Bank Bangladesh Limited was established; which including - 19 Bangladeshi national, 4 Bangladeshi institutions and 11 banks, Financial institutes and government bodies of the Middle East & Europe including IDB, Two eminent personalities of the kingdom of Saudi Arabia. Later, other four Islamic Banks, Islamic insurance companies and financial institution were established in the country some traditional banks opened Islamic Banking Branches in some major cities. Al-Baraka Bank Limited, called the second Islamic Bank in Bangladesh, commenced banking business as a scheduled bank on May 20, 1987.

Islamic bank is a financial institution that performs; most of the standard banking activities of the basis of profit-loss sharing system conforming the principles of Islami shariah. It operates with the objectives to implement and materialize the economic and financial principles of Islam in the banking area. According to Islami Banking Act 1983 of Malaysia, Islami Bank is a Company which carries on Islami banking business, Islami Banking business means banking business whose aims and operations do not involve any element which is not approved by the religion of Islam”. Islamic Banking is essentially normative concept and could be defined as the conduct of in consonance with the ethos and to the value system of Islam.” Shawki Ismail Shehta viewing the concept from the perspective of an Islamic economy and the prospective role to be played by an Islamic bank there in opines. "It is, therefore, natural and indeed, imperative for an Islamic bank to incorporate in its functions and practices commercial investment and social activities, as an institution designed to promote the civilized mission of an Islamic economy" (lbid) .

Four elements of Islamic Bank

v To avoid Bank interest

v Invest money on profit

v Invest money in Halal business

2.2 Structure of the organization

Figure 2.1: Structure of the organization

2.3 Overview of Jatrabari Branch

Managing Director	1
Executive Vice President	2
Vice President	1
Senior Vice President	3
Senior Principal Officer	5
Principal Officer	6
Senior Officer	8
Junior Officer	12
Assistant Officer	10

2.4 Islami Bank Bangladesh Limited at a Glance

2.4.1 Corporate Information

Particulars	Particulars
Date of incorporation	13March 1983
Date of receiving Banking License	28 March 1983
Date of incorporation of first branch, Local office, Dhaka (formal Head Office, Dhaka)	30March 1983
Formal inauguration	12 August 1983
Authorized capital	Tk.20,000.00 Million
Paid Up Capital	Tk. 12,509.64 Million
Branch Number	276
Investment	Tk. 329,906.00 Million
Share of capital: Local share holders Foreign share holder	41.43% 58.57%
Deposits	Tk.335,578.00 Million
Manpower	12,188
No. of shareholder	60,302
No. of ATM	1,592
Zones	14

Table 2.1: Corporate Information

2.4.2 Milestone of Islami Bank Bangladesh Limited

Established on	13^th March 1983
Certificate for commencement of business	27^th March 1983
Inauguration of 1^st Branch	30^th March 1983
Formal inauguration	12^th August 1983
Shariah supervisory committee	1983
CSR/ foundation activities	1983
IPO	1985
Listing in DSE Limited	2^nd July 1985
Listing in CSE Limited	7^th March 1996
Accommodation of Islami Bank Bangladesh Limited Head Office in its own tower	10^th March 2000
1^st rights share issue	1989
2^nd rights share issue	1996
3^rd rights share issue	2000
4^th rights share issue	2003
Opening of 100^th branch	2003
Opening of 200^th branch	21^st June 2009
Opening of 250^th branch	25^th December 2010
In- house core banking software	2005
Islami Bank Bangladesh Limited Mudaraba perpetual bond issue	25^th November 2007
Inauguration of broker house	1^st January 2008
Islami Bank Securities Limited	22^nd March 2010
Islami Bank Capital Management Limited	1^st April 2010
1^st position of Islami Bank Bangladesh Limited in Inward Remittance	2007, 2008, 2009 & 2010
100% Branch online banking	7^th January 2011
Launching of i-banking	16^th December 2011
Launching of Islami Bank m-Cash	27^th December 2012
Agreement with CDBL	29^th December 2004

Table 2.2 : Milestone of Islami Bank Bangladesh Limited

2.4.3 Board of Directors

The board of director consists of 17 non-executive members. The number of board members is within the maximum limit set by the central bank. The board is composed of experienced members with devised professional experiences. The decision making process and practices are based on free exchange of views to make effective directions for the management which is one of the key responsibilities of the board.

Prof. Abu Naser Muhammad Abduz Zaher	Chairman
Yousuf Abdullah Al- Rajhi	Vice- Chairman
Engr. Mustafa Anwar	Vice- Chairman
Abdullah Abdul Aziz Ali Khan	Director
Engr. Md. Eskander Ali Khan	Director
Dr. Abdul Hammed Fouad Al Khateeb	Director
Md. Abul Hossain	Director
Mohammad Abdullah Al Jalahma	Director
Mominul Islam Patwary	Director
Hafizul Islam Miah	Director
Md. Shahidul Islam	Director
Mohammad Nazrul Islam	Director
Md. Abdus Salam, FCA, FCS	Depositor Director
Humayun Mokhteyar, ACPA, FCA	Depositor Director
Professor NRM Borhan Uddin, Phd	Independent Director
Mohammad Abdul Mannan	Managing Director

Table 2.3 : Board of Directors

2.5 Objective of the Islami Bank Bangladesh Limited

v To eliminate interest

v To develop human resources for enhancing economic growth and quality of life

v To cover the fulfillment of the basic needs of the people

v The objectives of Islamic banking are not only to earn profit, but to do good and welfare to the people. Islam upholds the concept that money, income and property belong to Allah and this wealth is to be used for the good of the society

v Islamic banks operate on Islamic principles of profit and loss sharing ,strictly avoiding interest, which is the root of all exploitation and is responsible for large-scale inflation and unemployment

v To avoid economic instability

v An Islamic bank is committed to do away with disparity and establish justice in the economy, trade, commerce and industry; build socio-economic infrastructure and create employment opportunities

v To provide safety net for the weak, poor and distressed

2.6 Vision & Mission

Vision

The vision of Islami Bank Bangladesh Limited 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 the soundness and development of the financial system based on Islamic principles and to become the strong and efficient organization with highly motivated professionals, working for the benefit of people, based upon accountability, transparency and integrity in order to ensure stability of financial system.
Try to encourage savings in the form of direct investment
Try to encourage investment particularly in projects which are more likely to lead to higher employment.

Mission

v To established Islamic Banking through the introduction of a welfare oriented banking system and also ensure equity and justice in the field of all economic activities, achieve balanced growth and equitable development through diversified investment operations particularly in the priority sectors and less development areas of the country

v To encourage socio-economic upliftment and financial services to the low-income community particularly in the rural areas.

2.7 Functions of Islami Bank Bangladesh Limited

The functions of Islami Bank Bangladesh Limited are as under:

A) General banking

It includes-

Mobilization of deposits
Rreceipts and payment of cash
Handling transfer transaction
Operations clearing house
Maintenance of accounts with Bangladesh Bank and other Banks
Vollections of checks and bills
Issue and payment of Demand Draft ,Telegraphic transfer and Payment Order
Executing customers standing instructions.
Maintenance of safe deposit lockers
Maintenance of internal accounts of the bank.
While doing all the above noted work Islami Bank Bangladesh Limited issue cheque book ,Deposit account
operating forms, Sscards, cheque book, ledger, cash books Deposit account ledger,
Preparation statements of accounts and passbook, balance different accounts and calculates profits.

As per Banker’s Almanac (January 2014 edition) published by the Reed Business Information, Windsor Court, England, Islami Bank Bangladesh Limited’s world Bank is 1771 among 3000 banks selected by them. This position was 1902 among 4500 selected banks as on January 1999 edition. Islami Bank Bangladesh Limited’s country Rank is 5 among 29 banks as per ratings made by the above Almanac on the basis of Islami Bank Bangladesh Limited’s Financial Statements of the year 2011

v Preliminary discussion may have with the prospective client regarding his line of business, experience & investment needs

v The past performance of the client to be studied and Branch’s track record of proposed investment

v If the proposal found suitable the client may be asked to submit a formal application along with necessary papers/documents

2.8 Five Years Financial Highlight of Islami Bank Bangladesh Limited

Islami Bank Bangladesh Limited

Balance sheet

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	1,065,679,827	1,013,985,359
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

v Source : IBBL Annual Report

2.9 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.

2.9.1 Strengths

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.

2.9.2 Weaknesses

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.

2.9.3 Opportunities

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.

2.9.4 Threats

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.

Chapter-Three

Conceptual Framework

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 an 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.

3.4 Types 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.

3.6 Why 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 is unable 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.

3.8 Investment Portfolio

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.

3.9 Determinants 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.

3.10 Investment Functions

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.

Chapter : 04

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 islami shariah.
The bank extends investment under the principles of Bai-murabaha, Bai-Muazzal, Hire Purchase under Shirkatul Melk and Musharaka.

4.3 IBBL Jatrabari Branch Investments Position 2014

Fig. in Taka (Actual)

Deposit	40,28,16,762.19
Investment	70,59,23,723.37
Profit	4,22,63,914.56
Loss	-
Classified Loan	20,01,03,478.03

Source : IBBL Jatrabari Branch

4.4 IBBL Jatrabari Branch Investments Position 2015

Fig. in Taka (Actual)

Deposit	59,28,16,762.19
Investment	87,59,23,723.37
Profit	5,22,63,914.56
Loss	-
Classified Loan	26,01,03,478.03

Source : IBBL Jatrabari Branch

4.5 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

4.6 Credit Recovery

Days past Due	Collection Action
1-14	Letter, Follow up & persuasion over phone
15-29	1^st Reminder letter & serial no. 1 follows
30-44	2^nd reminder letter + single visit
45-59	3^rd reminder letter Group visit by term member Follow up over phone Letter to Guarantor, Employer, Reference all above effort follows Warning on legal action by next 15 days
60-89	Call up loan Final Reminder & serve legal notice Legal proceeding being Repossession starts
90 and above	Telephone calls/ Legal proceeding continue Collection effort continues by officer & agent Letter to different banks/ Association

Source : IBBL Annual Report

4.7 Financial Condition

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

4.8 Terminologies

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.

4.9 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.

4.10 Graphical Presentation & Discussion of Investment

Particulars

Year (Taka in Millions)

2010

2011

2012

2013

2014

Investment

Increase or Decrease

Growth

14,455.78

11,188.29

-3,267.49

-23%

22,502.48

8,046.70

56%

18,591.13

4,135.35

29%

22,894.75

8,438.97

58%

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.

4.11 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.

4.12 Bai Mechanism

Under Bai Mechanism banks are invested their money in some different ways. Such as :

4.12.1 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.

4.12.2 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.

4.13 Bai-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.

4.13.1 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.

4.14 Bai-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.

4.14.1 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].

4.15 Bai-Istishna’a

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.

4.15.1 Islami Bank can utilise Istisna'a in the following ways

v 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.

v 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.

v 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.

4.15.2 The obligations of Islami Bank as a Seller in the first contract and as a Buyer in parallel contract are as under

v 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.

v 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.

v 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.

4.16 Share Mechanism

4.16.1 Mudaraba

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.

4.16.1.1 Types of Mudaraba

Mudaraba Contracts may be divided into 2 types

4.16.1.1.1 Restricted Mudaraba (Al Mudaraba Al Muqayyadah) A restricted Mudaraba (Al Mudaraba Al Muqayyadah) is a contract in which the Shahib-al-maal impose any restrictions on the actions of the Mudarib but not in a manner that would unduly constrain the Mudarib in his operations.

4.16.1.1.2 Mudaraba (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.

4.16.1.2 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.

4.16.2 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.

4.16.3 Ijara Mechanism

Hire Purchase under Shirkatul Melk is a Special type of contract that has been developed through practice. Actually, it is a synthesis of three contacts :

1. Shirkat

2. Ijarah and

3. Sale

These may be defining as follows :

4.16.3.1 Shirkatul Melk : ‘Shirkat’ means partnership. Shirkatul Melk 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 Shirkatul Melk. In the case of Hire Purchase under Shirkatul Melk, 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.

4.16.3.2 Ijara : 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.

4.16.3.3 Sale : 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.

4.17 IBBL Investments Income

Particular	31.12.2013 (Taka)	31.12.2014 (Taka)
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.

4.18 There are some Special Schemes under Investment

4.18.1 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.

4.18.2 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.

4.18.3 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.

4.18.4 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.

4.18.5 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.

4.18.6 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.

4.18.7 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. Many of these categories of people cannot purchase a car on payment of entire purchase value at a time out of their own sources. To meet this need Islami Bank has introduced the Car Investment Scheme for the mid and high ranking officials of government and semi-government organizations, corporations, executives and directors of big business houses and companies arid also for persons of different professional groups on easy payment terms and conditions.

4.18.8 Rural Development Scheme of IBBL

Islami Bank Bangladesh limited (IBBL) envisages an economic system based on equity and justice. Taking into consideration that majority of the population below poverty line lives in rural Bangladesh, the Bank has devised a Rural Development Scheme (RDS) with a view to creating employment opportunity for them and alleviates their poverty through income generation activities.

4.18.9 Agricultural Implements Investment Scheme

Bangladesh is predominantly an agricultural country with vast majority of people living in rural areas. Most of our people for their living are dependent on agriculture. Agriculture still contributes the lion share of the gross domestic product. But we could not as yet become self-sufficient in food production. We still import a bulk quantity of food grains from abroad to meet the deficit. We must modernize our agriculture and establish more and more industries in order to minimize imports.

The Bank has introduced Agriculture Implements Investment Scheme to provide power tillers, power pumps, shallow tube wells, thrasher machine etc. On easy terms unemployed youths for self-employment and to the farmers help augment production in agricultural sector.

4.18.10 Micro Industries Investment Scheme

Islami Bank Bangladesh Ltd. has been appreciably participating in this direction by financing industrial sector. With a view to creating wider base for industries, the Bank has decided to launch Micro Industries Investment Scheme through its Branches.

Objectives and Principles

• To invest fund strictly in accordance with the principles of Islami Shariah.

• To diversity its investment portfolio by size of investment, by sectors (public and private) by economic purpose, by securities and by geographical area including industrial, commercial & agricultural.

• To ensure mutual benefit both for the Bank and the investment client by professional appraisal of investment proposals, judicious sanction of investment close and constant supervision and monitoring thereof.

• To make investment keeping the socio economic requirement of the country in view,

• To increase the number of potential investors by making participatory and productive investment.

• To finance various development schemes for poverty alleviation, income and employment generation with a view to accelerate sustainable socio-economic growth and for enlistment 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 enlistment enterprises.

• To shun even highly profitable investment in fields forbidden under Islamic Shariah and are harmful for the society.

• The Bank extends investments under the principles of Bai-Murabaha, Bai-Muazzal, Hire Purchase under Shirkatul Melk and Mudaraba. The Bank is making sincere efforts to go for investment under Mudaraba principle in near future.\

4.19 Importance of Assessing of Investment Needs

Assessment of Investment needs is necessary for the following reasons :

(i) To detect actual Investment limit of Bank.

(ii) To detect actual Investment against obsolete /out dated/non trading items.

(iii) To assess the quality, quantity, price and marketability of the commodities.

(iv) To ensure proper follow-up supervision and monitoring of the Investment.

(v) To ensure capacity of the client in handling Investment activities.

(vi) To overcome the situation of Division of found by the clients.

(vii) To ensure trading instead of lending of money.

(viii) To ensure payment against delivery of goods.

4.20 NRB (Non Resident Bangladeshi) Entrepreneurs Investment Scheme (NEIS)

Islami Bank Bangladesh Limited (IBBL) being a welfare oriented financial institution has been offering a broad spectrum financial facilities to the business houses and individual clients from the very beginning. It has introduced several investment schemes for different strata and cross sections of people for their socio-economic uplift and improvement of their quality of living standard. Our country is fortunate that a lion share of our foreign currency generates from the earnings of expatriates contributing to the Country’s GDP and foreign currency reserve. But it is discouraging that a major portion of the Wage-earners’ remittances are spent in unproductive sector and remain idle and thereby the nation is being deprived from the desired benefit therefore. With a view to encouraging the NRBs to invest their hard earned money in the productive sectors/areas for their own benefit as well as for the benefit of the nation as a whole, the authority has been pleased to introduce the subject Investment Scheme.

4.20.1 Eligibility of the Clients

Non Resident Bangladeshi within age limit of 18 to 60 years.
Bangladeshi citizens resided in abroad for long time, remitted foreign currencies through IBBL channel and now in Bangladesh.
Family members of the NRB i.e. Spouse, Sons and/or Daughters who is/are maintaining A/C with IBBL with the remittance of NRB routed through IBBL.

4.21 Purpose of Investment

Establishment of manufacturing/service industries/processing & BMRE thereof
Working Capital to run the projects/or any ready projects
Trade financing.
Investment Limit
Investment range shall be from Tk.0.05 million to Tk.100.00 million

4.21.1 Period of Investment

Nature of Investment	Period of Investment
Term Investment	Maximum 10 years depending on the nature/need of investment client/business
Working Capital and Trade Financing	Maximum 1 (one) year on revolving basis.

4.21.2 Equity

Capital Machinery : 80:20 (Bank : Client) Project-Building/Structure: 40:60 (Bank: Client)
Murabaha/MPI: 25% (By the client)
LC/Bills: 10% (minimum)
Transport: 60:40 (Bank: Client) and other terms and conditions as per Transport Investment Scheme (TIS).

4.22 Rate of Return

The rate of return shall be 12% or to be determined by the Bank from time to time.

4.23 Areas of Investment

Booster Sectors (as declared by the Government).
Electrical and Electronics.
Software Developing.
Light Engineering and Metal Engineering.
Agro-processing/Agri-business/Plantation/Agriculture/Tissue Culture
Leather products.
Knit Wear and Readymade garments.
Plastic and other synthetics.
Health Service and Diagnostic.
Education.
Medicine/Perfume/Chemicals.
Designer and Fashion wear.

4.23.1 General Sectors

Crop cultivation/Farming.
Epic-culture/Seri-culture.
Poultry/Hatchery.
Beef fattening.
Fisheries/Fishing/Fish Canning.
Agro-Supportive items/Industry.
Textile and textile products.
Glass & Glass products.
Transport & Communication.
Recreation park.
Parts of different vehicles.
Multimedia/Mass media.
Household products /Crockery/Office fittings.
CNG filling and conversion plant.
Silk worm and silk industry.
Tourism/Hotel.
Toy Industry.
Spectacles frame and glass industry.
Beauty parlor.
Rice/Flour Mill /Maize Processing Unit.
Modernization of shops/business centers.
Permanent possession of shops/business centers.
Meat of goat, duck, ram, cow and buffalo marketing and processing.
Milk processing and marketing.
Tea production and processing.
Bio-energy plant/Solar energy plant/any other energy generating local devices.
Paper/Paper products/Printing.
Manufacturing of hydrogenated oil/oil from rice dusts/banaspathi ghee, edible oil & fats/brick manufacturing/aluminum products.
Engine driven water vehicle.
Ice industry.
Flower cultivation and marketing.
Cattle/animal food Industry.
Rubber production and marketing.
Agricultural instruments industry.
Other products, Trading and Service Sectors :
Chira, Muri Production, processing and marketing.
Food production from fruits, processing and marketing.
Production of Flour, Bread and Biscuit, Semai, Noodles, Chips, Chanachur, Corn-flakes, Potato flakes, French fry, Pop-corn, Baby food, Stearch etc.
Production & marketing of Juice, Jam, Jelly, Tomato Ketch up, Sauce, Achar etc.
Spice (Masalla) production and marketing.
Oil mill, Dal mill etc.
Dehydrated fruit canning, packaging, production and marketing.
Jewellery.
Photography.
Printing press.
Frozen food/fish processing, preservation and marketing.
Leather and leather goods production.
Vegetable preservation and marketing.
Handicraft and Cottage.
Retailers and wholesalers, grocery shop, departmental store, hardware, perfume, restaurant, stationery, pharmacy, readymade garments shop, furniture shop and the other business having good demand.
Any other products locally produced/manufacturing.

4.23.2 Securities and Collateral

Collaterals security may not be insisted up to Investment of Tk.0.50 million only.
In case of investment exceeding Tk.0.50 million, collateral security shall have to be obtained as per Bank’s usual norms and practices.
In all cases the following documents are to be obtained:
Personal guarantee of the client.
Personal guarantee of spouse/father/mother/sister/brother.

4.24 Mode wise Investment of IBBL 2014 & 2013

Mode Wise investment of 2014 & 2013
Mode Wise investment of 2014 & 2013						Serial No.	Mode	2014	2013
Amount	% Total Investment	Amount	% Total Investment			Serial No.	Mode
1	Bai-Murabaha	281,556	60.75%	224,456	55.17%
2	HPSM	109,941	23.7%	95,491	23.47%
3	Bai-Muajjal	15,443	3.33%	23,301	5.68%
4	Bill Purchased & Negotiation	30,424	6.56%	23,261	6.61%
5	Quard	15,478	3.34%	13,670	3.36%
6	Bai-salam	4,808	1.04%	3,889	0.96%
7	Mudaraba	3,000	0.65%	-	0.00%
8	Musaraka	2,825	0.61%	19,323	4.75%
9	Total	463,475	100%	403,195	100%

Source : IBBL Annual Report

4.25 Sector-wise Investment

S.L. No.	Subject	31/12/2014	31/12/2013
	Trade & Commerce	129,544,045,291	125,788,547,816
	Real Estate	37,680,385,849	27,126,960,967
	Transport	6,435,450,233	6,679,236,366
	Agriculture	11,131,087,642	20,384,772,976
	Industrial Investment	247,350,986,911	193,549,881,241
	Others	30,013,085,540	28,511,668,572
	Total	463,475,467,466	403,194,804,977

Source : IBBL Annual Report

4.26 Year-Wise Investment in Bai Murabaha

Trend of Investment In Bai Murabaha
Trend of Investment In Bai Murabaha						Year	2010	2011	2012	2013	2014
Investment in Bai- Murabaha (TK. in Millions)	146,135	177,136	221,632	224,456	281,556
Percentage of Total Investment	55.52%	57.92%	59.43%	55.17%	60.75%

Source : IBBL Annual Report

4.27 Year wise Investment in Mushaaraka

Investment in Musharaka
Investment in Musharaka						Year	2010	2011	2012	2013	2014
Investment in Musaraka (TK in Millions)	12,244	9,571	13719	19323	2825
Persentage of Total Investment	4.65%	3.13%	3.68%	4.75%	0.61%

Source : IBBL Annual Report

4.28 Year-wise Investment in Bai- Muajjal

Investment in Bai-Muajjal
Investment in Bai-Muajjal						Year	2010	2011	2012	2013	2014
Investment in Bai-Muajjal (TK in Millions)	12,393	15,929	18,295	24,053	15,443
Persentage of Total Investment	4.71%	5.20%	4.91%	5.91%	3.33%

Source : IBBL Annual Report

4.29 Year Wise Investment in HPSM

Investment in Hire Purchase under Shirkatul Melk (HPSM)
Investment in Hire Purchase under Shirkatul Melk (HPSM)						Year	2010	2011	2012	2013	2014
Investment in HPSM (TK in Millions)	80,093	89,070	96,056	95,491	109,941
Persentage of Total Investment	29.12%	30.42%	25.76%	23.47%	23.72%

Source : IBBL Annual Report

4.30 Year-wise Investment in Bai Salam

Investment in Bai-Salam
Investment in Bai-Salam						Year	2010	2011	2012	2013	2014
Investment in Bai-salam (TK in Millions)	3624	3528	3532	3889	4808
Persentage of Total Investment	1.38%	1.15%	1.22%	0.96%	1.04%

Source : IBBL Annual Report

4.31 Major Findings of the Study

Some findings of the study are given below :

IBBL investment procedure is very difficult.
IBBL does not sanction investment to all sectors equally. It invests within some limited fields and categories.
Employees have lack of knowledge in investment sector for fulfill the main purpose of investment.
Some of the employers try to violet Islami Shariah when they deal with investment.
Some investment deals are very much slow.
Absence of attractive innovative investment products.
There has Chance to submit wrong appraisal and evaluation of investment proposal.
All activities are conducted on interest free system according to Islami Shariah.
Investment is made through different modes as per Islami Shariah.
Invest income of the bank is shared with the Mudaraba depositors according to an agreed upon ratio, ensuring a reasonable fare rate of return on their deposits.
Aims to introduce the welfare oriented banking system and also establish equity and justice in the field of all economic operations.
Extend socio economic and financial services to individuals of all economic background with strong commitment in rural uplift.
Plays a vital role in human resources development and employment generation particularly among the unemployed youths.
Ensures Shariah compliance through regular and effective guidelines of powerful and highly esteemed Shariah council consisting of thirteen members representing Shariah scalars.
Investment has increased by 57.67% from 2014 to 2015 in Jatrabari Branch.

4.32 Overall Learning from Internship

As part of the Internship program of Bachelor of Business Administration course requirement, I was assigned for doing my internship in Islami bank Bangladesh Limited for the period of three months. During my internship period in the Islami bank Bangladesh Limited Jatrabari Branch I worked under for all departments particularly general banking department and Investment department of the bank.

During internship, One needs to obey the rules and regulation of the organization, do the daily schedule activities; and any other the jobs assigned by the supervisor. During the internship program, I worked in General Banking. In General Banking I had provided day to day services like sort the data, written pay order, clearing, transfer scroll, bank cash scroll, arranging voucher, I got to know the account opening procedure (general), Photo and signature scanning, dealing with customer, Issue of cheque book, Bank statement issuance, using various office equipments like photo copy machine, cheque writer.

I also worked in the Loans and Advances Department. In Loans and Advances Department, my job was to provide financial ratio analysis, to learn cash credit (CC) Procedure, investment product, investment sanction activities, credit monitoring procedure, investment recovery activities, sort the documents, reconcile the un-reconciled entries, and inputs the data into excel sheet and computer generated software.

I have faced some problems in my internship program, such as customer’s bad comment for give delay services and some officer’s terrible activities.

At the end of my internship I can say I learned lot of practical working things of banking system which totally different from our academic knowledge, and I also learned how to deal with customer in different situation and also I saw that bank service also vary on client and banks relationship.

Chapter : 05

Recommendations & Conclusion

5.1 Recommendations

Based on the findings, some recommendations of the study are as follows:

Islami bank Bangladesh Limited should make the investment procedure easy and understandable to attract the potential customer.
Islami bank Bangladesh Limited should invest all economic sectors for more profit. It also helps to create new employment opportunity.
The Bank should offer better training program for their employees to make the employees efficient in investment sector.
Official at branch level should more careful in compliance with desired Shariah regarding investment.
IBBL should take Investment decision make faster.
It is necessary to make some new investment products to come to the stage of competition. In recent years, some banks have launched a number of innovative investment products to attract their customers. IBBL may follow the way to be a leader of modern banking.
If employees become well trained, the possibility of wrong appraisal and evaluation of investment proposal will be minimized.

5.2 Conclusion

Islami banking system the collection of invested money is easier than the conventional banking because Islami bank concerns with the purpose of investment not with only the invested money. We also think that there is bright future waiting for Islami banking in Bangladesh and IBBL is in a position to go as a catalyst for this development in the banking sector in Bangladesh. Another thing We have to mention here that the IBBL is going through the path in which they need to go and as like today it bring more new and welfare oriented activities in the banking sector in the years to come. The special features of the banking policy of Islami bank are to invest on the basis of profit loss sharing system in accordance with the tenets and principles of Islami Shariah. Earning of the profitis not the only motives and objectives of the Islami bank banking policy rather emphasis is given in attaining social good and in creating employment opportunities. By concerning Islami bank and its operations we come to the conclusion that the investment models of IBBL are superior to the coventional Bank. In conventional banking system loan is granted on the basis of interest, which is fixed. In Islami banking system investment is going on with profit loss sharing system. In this system on fluctuation comes between growth of economy as well as growth of IBBL. In Islami banking system, it is possoble to create balance between money supply and the production of goods. On the other hand, conventional banking system creates inflationary problem. In conventional banking system, investment doesn’t ensure employment opportunity besides Islami banking system dirctly work with unemployment problem. At the time of increasing interest rate, investment decreases and as the same time unemployment also increases. In conventional banking system, interest rate always fluctuates and even unrest in economy. Besides Islami bank always helps economic growth. In Islami banking system the collection of invested money is easier than the conventional banking because Islami bank concerns with the purpose of investment not with only the invested money. Mention here that the IBBL is going through the path in which they need to go and as like today it will bring more new and welfare oriented activities in the banking sector in the years to come.

References

Gitman L. J. (2002). Principles of Managerial Finance. 10^th Edition. 40-73, Prentice Hall, New York, USA : Pearson Education.

James C. V. H. (2006). Fundamentals of Financial Management. 12^th Edition. Prentice Hall, New York, USA : Pearson Education.

Stephen A. R. (2015). Corporate Finance. 10^thEdition. New York, USA : The McGraw-Hill.

White G. (2002). The analysis and use financial statement. 3^rd edition. New York City, USA : Wiley.

Annual Report of IBBL 2014.

Bangladesh Bank : Bangladesh Bank Annual Report. (2011). Banking Sector Performance, Regulation and Bank Supervision, Chapter-5. 40-59.

Bangladesh Bank (1998). Economics Trends, Statistics department, Bangladesh Bank, Vol-no.10.

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Sample Internship Report on Investment Activities of IBBL

3.5.1 Investment Definition in terms of Finance

3.6 Why People Invest

3.7.1 Investment in IBBL

Source : Annual Report 2014 (IBBL)

4.2 Objectives and Principles

4.12 Bai Mechanism

4.12.1 Bai-Murabaha (Contact Sale on profit)

4.14 Bai-Salam (Advanced Purchase)

4.15 Bai-Istishna’a

4.15.1 Islami Bank can utilise Istisna'a in the following ways

4.16 Share Mechanism

4.16.1 Mudaraba

4.16.1.2 Mudaraba as a Source of Funds

4.16.2 Musharaka (Partnership)

4.16.3 Ijara Mechanism

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