An Internship Report On Modes of Investment A Study on Islami Bank Bangladesh Limited (part-2)

§ Adopting the good and articulating the truth

§ Transparency in statements

Rules of conduct towards shareholders, managers and fellow employees

§ Developing the work through innovative and creative ideas

§ Respecting the working hours of the institution

§ Getting acquainted with the directives

§ Safeguarding the institution’s assets and facilities

§ Refraining from doing anything detriment to the organizational interest

Rules of conduct towards those who deal with the institution and related parties

§ Being keen to meet the needs of those who deal with the institution

§ Giving rights to those who are entitled for

§ Preserving confidential information

§ Being serious in one’s behavior and actions

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2.7 Corporate Information:

Name of the Company : Islami Bank Bangladesh Limited

Legal Status : Public Limited Company

Company Registration No. : C–1 0 5 8 9 Dated March 13, 1983

485

Bangladesh Bank License No. : BL/DA/4290/83

eTIN : 376764873732

VAT Registration No./BIN No. : 19011032134

Line of Business : Banking

Total Branch : 302

SME/Agriculture Branch : 30

Zone : 14

AD Branch : 53

Offshore banking Unit : 03

ATM Booth (own) : 450

ATM Booth (shared) : 4000

IBBL Deposit Machine (IDM) : 33

Employees : 13,574

Directors : 15

Sponsors : 36

Shareholders : 60,857

MPB holders : 23,272

Local Shareholders : 32.75%

Foreign Shareholders : 67.25%

Foreign Correspondents : 723

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Chairman : Prof. Abu Nasser Muhammad Abduz Zaher

Vice Chairmen : 1. Yousif Abdullah Al-Rajhi, KSA

2. Engr. Mustafa Anwar

Managing Director : Mohammad Abdul Mannan

Company Secretary : Abu Reza Md. Yeahia

Head of Internal Control & Compliance : Md. Habibur Rahman Bhuiyan, FCA

Chief Financial Officer :Mohammed Shahid Ullah, ACA, CIB, CDCS

Credit Rating Agency : Credit Rating Information and Services Ltd.

Subsidiary Companies : 1. Islami Bank Securities Limited

2. Islami Bank Capital Management Limited

3. IBBL Exchange Singapore Pte. Ltd.

Statutory Auditors : 1. M/s. Syful Shamsul Alam & Co.

Chartered Accountants

2. M/s. Aziz Halim Khair Choudhury

Chartered Accountants

3. M/s. Howladar Yunus & Co.

Chartered Accountants

Tax Advisor : M/S. K.M. Hasan & Co.

Chartered Accountants

Registered Office : 40, Dilkusha C/A, Dhaka-1000, Bangladesh

Phone : PABX (88-02) 9563040, 9567161, 9567162

Mobile : 88-01711435638-9

FAX : 88-029564532, 9568634

SWIFT : IBBLBDDH

E-mail : info@islamibankbd.com

Website : www.islamibankbd.com

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2.8 Organogram of Islami Bank Bangladesh Limited:

Figure: Organogram of IBBL

Source: Internal Report of IBBL, Sylhet Branch

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2.9 Products and Services:

Products and Services of Islami Bank Bangladesh Limited are as follows:

2.9.1 Deposit Products:

2.9.1.1 Deposit Products in Local Currency:

§ Al-Wadeah Current Account (AWCA)

§ Mudaraba Savings Account (MSA)

§ Mudaraba Special Notice Account (MSNA)

§ Mudaraba Special Savings (Pension) Account (MSSA)

§ Mudaraba Term Deposit Account (MTDA)

§ Mudaraba Savings Bond Account (MSBA)

§ Mudaraba NRB Savings Bond {M(NRB)SB}

§ Mudaraba Hajj Savings Account (MHSA)

§ Mudaraba Waqf Cash Deposit Account (MWCDA)

§ Mudaraba Monthly Profit Deposit Account (MMPDA)

§ Mudaraba Muhar Savings Deposit Account (MMSDA)

§ Students Mudaraba Savings Account (SMSA)

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§ Mudaraba Farmers Saving Account (MFS

§ Mudaraba Upohar Deposit Scheme (MUDS)

2.9.1.2 Deposit products in Foreign Currency:

Mudaraba Foreign Currency Account (MFCA)

§ Mudaraba Exporters’ Retention Quota Account (MERQ)

§ Foreign Currency Account (FCA)

§ Foreign Currency Account (ERQ)

§ Resident Foreign Currency Deposit Account (RFCD)

§ Non-Resident Foreign Currency Account of Exchange Houses/Banks

§ Non-Resident Investors Taka Account (NITA) for Foreign Portfolio Investors.

§ Non-Resident Taka Account (NRTA) for Foreign Direct Investors.

§ Foreign Currency Account for EPZ Companies (FCA-EPZ)

§ Foreign Currency Account of EPZ Enterprise

2.9.2 Investment Products and Schemes:

2.9.2.1 Investment Products:

§ Bai-Murabaha

§ Bai-Muajjal

§ Bai-Istijrar

§ Bai-Salam

§ Bai-Salam (Pre-shipment)

§ Bai-Istisna

§ Mudaraba

§ Musharaka

§ Musharaka Documentary Bill (MDB) Inland

§ Musharaka Documentary Bill (MDB) in Foreign Currency

§ Musharaka Investment in Potato Storage

§ Hire Purchase under Shirkatul Melk (HPSM)

§ Murabaha Post Import (MPI)

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§ Murabaha Import Bills (MIB)

§ Murabaha Import LC

§ Murabaha Foreign Currency Investment (MFCI) under EDF

§ Murabaha Foreign Currency Investment (MFCI) under Balance of MFCD A/C Bai-Muajjal Back to Back Bills

§ Bai-Muajjal Back to Back Bills

§ Bai-as-sarf (Foreign Documentary Bill: FDB)

§ Bai-as-sarf (Foreign Currency Cheques/Drafts: FCD)

2.9.2.2 Welfare-oriented Investment Schemes:

§ Household Durable Scheme (HDS)

§ Housing Investment Scheme (HIS)

§ Real Estate Investment Program (REIP)

§ Transport Investment Scheme (TIS)

§ Car Investment Scheme (CIS)

§ Investment Scheme for Doctors (ISD)

§ Small Business Investment Scheme (SBIS)

§ Agriculture Implements Investment Scheme (AIIS)

§ Rural Development Scheme (RDS)

§ Micro Enterprise Investment Scheme(MEIS)

§ Urban Poor Development Scheme (UPDS)

§ Micro Industries Investment Scheme(MIIS)

§ Women Entrepreneurs Investment Scheme

§ Palli Griha Nirman Beniyog Prakalpa

§ NRB Entrepreneurs Investment Scheme (NEIS)

§ Solar Panel Investment Scheme(SPIS)

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2.9.3 Offshore Banking Unit (OBU) Products:

2.9.3.1 Depsoit Products:

§ Al-Wadeah Current Account (FCA)

§ Mudaraba Savings Account (MFCA)

2.9.3.2 Investment Products:

§ Bill Financing under Mudaraba Documentary Bills (Mura-UPAS) against Usnace import Bills

§ Bill Financing under Mudaraba Documentary Bills (HPSM-UPAS) against Usnace import Bills

§ Bill Financing under Mudaraba Investment for MDB in FC against Inland Export Bills

§ Import Financing

§ Export

§ Financing

§ Short term Murabaha

§ Pre-Shipment Financing (Bai-Salam in FC)

§ Post-Shipment Financing (Bai-as-Sarf, MDB in FC)

§ Project Finance (HPSM investment)

2.9.4 Remittance Services:

2.9.4.1 Foreign Remittance Services:

§ Central Crediting Account

§ Payment of 3rd Bank Remittance through TT & PO

§ Payment of Spot Cash Remittances

§ Centrally NRB Accounts Opening

§ SMS Notification

§ SMS Push Pull Service

§ Maintenance of NRD & NRT Account

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2.9.4.2 Inward Remittance:

§ Electronic Fund Transfer

§ Spot Cash

§ Application for Programming Interface

§ Encashment of cash Foreign Currency

§ Collection of F.C. Cheques /Drafts

§ Payment of Foreign TT & DD (FTT & FDD)

2.9.4.3 Outward Remittance:

§ Travel purpose

§ Study purpose (Student File)

§ Medical purpose

§ Issuance of Foreign TT & DD (FTT & FDD)

§ Selling/Issuance of Foreign Currency note

§ Travel Pre-paid Card

§ Commercial Remittance

§ Different Private Remittance

2.9.5 Treasury Activities:

2.9.5.1 Dealing Room Operations:

§ Foreign Exchange Operations

§ Money Market Operations

2.9.5.2 Money Market Operations:

§ Placement to other Islami bank & Financial Institutions.

§ Bangladesh Government Islamic Investment Bond (BGIIB)

§ Islamic Interbank Fund Market (IIFM)

2.9.6 Technology Based Services:

2.9.6.1 Any Branch Banking Services:

§ Largest countrywide online banking facilities

§ Lowest fees for online deposit across the country

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§ Charge Free for depositing Tk.1,00,000/- within Divisional City

§ Any branch cash deposit

§ Quickest fund transfer

§ Charge free for Investment recovery/disbursement.

2.9.6.2 Cash Services:

§ 450 Own ATM booths and above 4000 shared ATM

§ 8 IDM (Islami Bank Deposit Machine)

§ Connectivity with OMNIBUS & VISA network

§ 24 hour support service for ATM

§ ATM card

§ Hajj card service

§ Visa Debit Card

§ Travel card

§ Khidmah Credit Card

§ Salary Card

2.9.6.3 Corporate Services:

§ Free/reduced charges of ATM

§ Standing Instruction facility for depositing MSS & Hajj A/c

§ Existing BEFTN facilities through Bangladesh Bank

§ Existing BACPS service through Bangladesh Bank

§ Crediting salary within one hour throughout the Country

§ Centralized foreign trade processing system

§ IBBL Online money transfer

2.9.6.4 Upcoming Services:

§ Upcoming debit facility from POS with Biometric option

§ mCash withdraw From ATM

§ Full fledge corporate banking module

§ Centralized Investment Proposal Processing System

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2.9.7 Other Value Added Services:

§ Payment Order (PO)

§ Demand Draft (DD)

§ Telegraphic Transfer (TT) Locker

§ Quard against TDR

§ Counseling

§ IBBL Web portal facility

§ Letter of Credit

§ Back to Back Letter of Credit

§ Bank Guarantee

§ Foreign Bank Guarantee

§ Export Bills Collection

§ Substitute Cash Assistance

§ SWIFT

§ Automated Clearing

§ IBBL Call Center

§ Phone Banking

§ Payment Gateway

§ Point of Sale (POS)

§ Islami Bank Service Centre

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Part Three

Theoretical Aspects

3.1 Islamic Bank and Banking:

Islamic banking is a banking system that is based on the principles of Islamic law (also known as Shari’ah) and guided by Islamic economics. Two basic principles behind Islamic banking are the sharing of profit and loss and, significantly, the prohibition of the collection and payment of interest. The Islamic banking system uses methods of profit and loss sharing to facilitate financial transactions: for some types of loans, the borrower only needs to pay back the amount owed to the lender, but the borrower can choose to pay the lender a small amount of money to serve as a gratuity. Since this system of banking is grounded in Islamic principles, all the undertakings of the banks follow Islamic morals. Therefore, it could be said that financial transactions within Islamic banking are a culturally distinct form of ethical investing (for example, investments involving alcohol, gambling, pork, etc. are prohibited). 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".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". It appears from the above definitions that Islamic banking is a system of financial intermediation that avoids receipt and payment of interest in its transactions and conducts its operations in a way that it helps achieve the objectives of an Islamic economy.

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3.2 Islamic Investment:

Investment is the action of deploying 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 a 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.

Conventional Loan or Credit	Islamic Investment
In conventional financing, lenders lend to borrowers to make a profit from the interest charged on the principal amount.	Islamic financing avoids interest-based transactions, and instead introduces the concept of buying something on the borrower’s behalf, and selling it back to the borrower at a profit.
For loans, borrowers pay an interest on the outstanding principal amount. Interest rates can be a fixed rate or based on a floating rate.	In place of interest, a profit rate is defined in the contract. Like conventional financing, profit rates can be a fixed rate, or based on a floating rate.
The lenders have the certainty of getting interest.	The investor does not have the certainty of profit. The investor may face profit or loss both.

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Loan is given to any sector.

Generally investment is given to productive and business sector.

3.3 Factors Related to Investment:

§ Risk,

§ Time,

§ Interest Rate,

§ Security or Collateral,

§ Operating Expense,

§ Legal Considerations,

§ Inflation,

§ Finance Charge.

3.4 Investment (Credit) Risk:

Risk Management in Islamic banking is not significantly different from conventional banking. Credit risk is known as investment risk by the Islamic banks literally both of them are same. Credit risk arises from the potential that a bank's borrower will fail to meet its obligations in accordance with agreed terms. Credit risk also refers the risk of negative effects on the financial result and capital of the bank caused by borrower's default on its obligations to the bank. Generally credits are the largest and most obvious source of credit risk. However, credit risk could stem from both on-balance sheet and off-balance sheet activities. It may arise from either an inability or an unwillingness to perform in the pre-committed contracted manner. Like conventional banks, Islamic banks also face credit risk in most of the modes of financing that they use. It is well known that Murabaha, Istisna, and installment sale or sales with delayed payment thus generating debts in the accounts of the banks. The fundamental form of risk in all these contracts is credit risk. Salam gives rise to a commodity debt rather than a cash debt, but it also involves credit risk. Mudaraba and Musharaka, on the other hand, are contracts of participation, and the funds given by the bank to entrepreneurs are not liabilities. Yet, these two also bears a credit risk in two ways. First, in the case of tort or negligence, the entrepreneur is

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liable to guarantee the capital which means a debt liability. Second, when the capital of Mudaraba or Musharaka are employed in a deferred sale, which is what takes place in most Mudarabas, the owner of capital, the bank in this case, bears an indirect credit risk. This risk pertains to the ability of the counter parties to repay.

3.5 Investment (credit) Risk Management:

The investment (credit) portfolio of a bank usually consists of a money market portfolio, capital market portfolio and general credit portfolio. Here a bank is highly exposed in the risks of capital market and general credit portfolio. In recent times, the awareness among the bankers has grown regarding the need for managing perceived risks in credit related activities. One of the goals of credit risk management in banks is to maximize a bank’s risk-adjusted rate of return by maintaining credit risk exposure within the acceptable level. Hence, the credit risk assessment and grading system are being applied to evaluate, identify, measure and monitor the level or status of perceived risk associated with a credit proposal. A number of financial and non-financial factors or parameters are used by the banks for these purposes. The use of comprehensive credit risk assessment and grading techniques increasing very rapidly in the banking sector in Bangladesh because of deterioration in the credit standing of the clients, adoption of Basel accords, compliance of IAS & (IFRS) and the vast revolution of technologies that has made the bankers user friendly in the adoption of these techniques.

3.6 Investment and Investment Risk Management Policies of IBBL:

Investment and investment risk management policy of Islamic banks and non Islamic banks are fully different. The policies followed by the IBBL are,

§ To observe strictly the principles of Islamic Shariah in investment operations.

§ To give emphasize on national priority sectors.

§ To diversify the investment portfolio by size, sector, geographical area, economic purpose, securities and modes of investment to minimize risk as well as to achieve the goals of Islamic Banking.

§ To ensure optimum utilization of the bank’s investible fund.

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