Final Report

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As an Islamic Bank the statutes, rules and regulations of Islami Bank Bangladesh Ltd. expressly state its commitment to the principles of Islamic Shariah. All its activities are conducted on interest free system according to Islamic Shariah. So it extends its socio-economic and financial services to the poor helpless and low-income people for their economic upliftment in urban and rural areas. Islami Bank Bangladesh Ltd. is more concerned with the soundness of the project and the business acumen and managerial competence of the entrepreneur than credit worthiness of the borrower. An Islamic bank is a financial institution that operates with the objective to implement and materialize the economic and financial principles of Islam in the banking arena. 1.1 BACKGROUND OF THE STUDY: For an expanding economy, a developed and efficient banking system is indispensable. Among others, it helps transfer of financial resources from surplus units to deficit units and, hence, helps accelerate the pace of development by securing uninterrupted supply of financial resources to people engaged in numerous economic activities. 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 played the pivotal role. The role of banking is comparable to what an artery system does in the human body. Both commercial banks and other development financial institutions provide short-term, medium-term, and long-term credits to businessmen 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 intermediation 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. 2

The margin between these two rates is the bank's income. In addition, banks also provide many other services to the public for which it receives service charges. For millions of Muslims, traditional banks are institutions to be avoided. Islam is a religion, which keeps believers from the teller's window. Their Islamic beliefs prevent them from dealings that involve usury or interest (Riba). Yet Muslims need banking services as much as anyone and for many purposes: to finance new business ventures, to buy a house, to buy a car, to facilitate capital investment, to undertake trading activities, and to offer a safe place for savings. For Muslims are not averse to legitimate profit as Islam encourages people to use money in Islamic legitimate ventures, not just to keep their funds idle. However, in this fast moving world, more than 1400 years after the Prophet (Sm), can Muslims find room for the principles of their religion? The answer comes with the fact that a global network of Islamic banks, investment houses and other financial institutions has started to take shape based on the principles of Islamic finance laid down in the Qur'an and the Prophet's traditions 14 centuries ago. Islamic Banking beyond the traditional banking system will serve the purpose of Islamic ideology of complete code of life. One could conclude that Islam has many universal values in common with the west. As Islam believes the earlier scriptures in its original form were from the same God (Allah), this is not surprising. However, the specific prohibition of interest and establishment of the zakat tax, and the status of law on gambling, uncertain contracts etc. which are prohibitions and not moral exhortations, implies that the objectives of banking in Islam is different from conventional and even to a certain extent social and environmental investment. Thus, there is a need for an Islamic investment system in the Banking arena

1.2 Objectives of the study:

To understand and analyze the Islamic Banking system of Bangladesh and its policies & regulations; To understand and analyze about the services rendered to the customer of Islami bank by hire purchase under shirkatul melk.


To explore the role of IBBL and its contribution by hire purchase under shirkatul melk to the economy. To measure the performance of hire purchase under shirkatul melk. To make possible suggestions and recommendations for improving its performances.

1.3 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 Population: All the Branches of IBBL located in everywhere in Bangladesh has been taken into consideration as population. Sample: Islami Bank Bangladesh Ltd, Panthapath branch & Islami Bank Training and research centre. Data collection: Source of data of this report can be divided into two categories: Primary Sources: Interviewing officers and staffs. Face to Face conversation with the respective officers, staffs, clients. Practical desk work.

Secondary Sources: Annual Report of IBBL Audit Reports Website Relevant books, Research papers, Newspapers and Journals. Internet and various study selected reports.


1.4 Limitation of the studyThe major portion of the data sources used for this report is a secondary one. High degree of involvement regarding collection of information, review of literature and analysis of information requires for any kind of research work. This study has suffered from certain constraints noted below: Unpublished data have not considered for the study. The depth of the analysis has been limited to the extent of information collected from different sources. Last of all, this study has been conducted within a limited time. So, time constraint has played a key role for the whole study. Lack of cooperation of the respondents. Lack of enough knowledge to study on


Chapter Two Overview of Islami Bank Bangladesh Limited


Historical Backgrounds of IBBLBased on Islamic principles and shariah (Islamic law), with an authorized capital of TK. 500 million (12.5 million US dollars), the Islamic bank in Bangladesh, called Islami Bank Bangladesh Limited (IBBL) was incorporated on March 13, 1983 as a Public Limited Company under the companies Act of 1913. The bank started its financial activities with effect from March 30, 1983. This is one of the first interest free banks in South Asia. The opening of Islami bank brought a new era in the history of the countrys financial market. The long cherished desire of many Muslims in the country was realized. The total number of branches of the bank as on December 1995 stood at 83. The bank had taken steps to spread its activities towards the rural areas of Bangladesh. With the implementation of the expansion program in the year 1997, almost all-important commercial places of the country would come under the operational activities of the bank. In Bangladesh, this is the second largest Muslim country of the world, Islami Bank Bangladesh Limited (IBBL)started as a joint venture multinational bank with 63.92% of equity contributed by the Islamic Development Bank and financial institutions like AlRaji Company for Currency Exchange and Commerce of Saudi Arabia, Kuwait Finance House, Jordan Islamic Bank, Islamic Investment and Exchange Corporation of Qatar, Bahrain Islamic Bank, Islamic Banking System International Holding, S.A, Dubai Islamic Bank, Kuwait Ministry of Awqaf and Islamic Affairs. Two eminent personalities of Saudi Arabia namely Fouad Abdul Hameed Al-Khateeb and Ahmed Salah Jamjoom, are also the sponsors of the Islami Bank Bangladesh Limited. (GB 1993/94).The responsibility for management and formulation policy of the IBBL is vested in the board of directors. The board consists of 14 local and 9 foreign directors. As a rule in the Article of Association, a Bangladeshi director is to be elected as the chairman of the company. A high powered Executive Committee has been formed to assist the chairman. There are six members in this committee, nominated by the board of directors. In addition to this there is a Management Committee consisting of the most senior executives of the bank. There is also a Shariah Council comprising famous Islamic scholars, economists and bankers. This Council is responsible for supervising the day to day affairs of the Islamic bank from the viewpoint of the Islamic Shariah



Executive President (EP) Deputy Executive President (DEP) Executive Vice President ( EVP) Senior Vice President (SVP) Vice President (VP) Assistant Vice President (AVP) Senior Principal Officer (SPO) Principal Officer (PO) Senior Officer (SO) Officer Probationary Officer Assistant Officer Grade - I Assistant Officer Grade - II Assistant Officer Grade - III


Meaning of Islamic Banking:Islamic banking has been defined in a number of ways. The definition of Islamic bank, as approved by the General Secretariat of the OIC, is stated in the following manner. An Islamic bank is a financial institution whose status, rules and procedures expressly state its commitment to the principle of Islamic Shariah and to the banning of the receipt and payment of interest on any of its operations(Ali & Sarkar 1995, pp.20-25). Shawki Ismail Shehta viewing the concept from the perspective of an Islamic economy and the prospective role to be played by an Islamic bank therein 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 (Ibid). Ziauddin Ahmed says, Islamic banking is essentially a norm