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Chapter One

Introduction of the Report

1.1 Rationale of study:
Internship program of University is a partial requirement for the graduation of BBA students.
Every B.B.A student is appointed to learn some practical knowledge within the pre-stipulated
period by observing the organization day to day activities. In this regard our internship
program started at 3
!anuary at "irst #ecurity Islami $ank $angladesh %imited. In the
modern society commercial $anks occupy a position of economic importance. &hey play a
significant role to meet the needs of the society such as capital formation' large-scale
production' industrialization' growth of trade and economy etc.
Islamic banks are unconditional and specialized financial institutions that perform most of
the standard banking services and investment activities on the basis of profit and loss sharing
system conforming to the principles of Islamic #hari(ah. )ut of * banking institutions' +
banks are backed by Islamic mechanism and worldwide accepted Islamic morality and
established code of conduct. &his paper' however attempts to appraise performance and
dictate the overall scenario of "irst #ecurity Islami $ank $angladesh %imited performing
beneath the umbrella of Islamic shari(ah and approved welfare oriented principles.
1.2 Objectives of report
&he first ob,ective of writing the report is fulfilling the partial requirements of the $$-
program. In this report' we have attempted to give an overview of "irst #ecurity Islami $ank
$angladesh %imited in general. &he primary ob,ective of this report is to observe the general
banking, investment related activities & foreign exchange operations of First Security
Islami Bank Bangladesh td.
!he other ob"ectives include#
"ollowing are the main ob,ectives
&o familiar the history of Islami $anking in $angladesh.
&o learn about the overall general banking operations of "#I$%.
&o show the investment mechanism and product offerings in different modes of "#I$%.
&o learn about the shari(ah aspects followed for foreign e.change operations.
&o learn about the welfare activities of "#I$%.
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&o show the differences with conventional banking regarding different aspects.
&o identify strength and weakness of "#I$%.
&o find problems or lacking that "#I$% is facing.
&o recommend actions that may be necessary to redesign the investments of "#I$%
1.3 Methodology
In order to carry out the report' we have collected the required data from both primary and
secondary sources. /e focused on taking the interviews of the personnel involved in the
different departments' 0anager and #enior %evel Employees' $usiness 1lients and -ccount
2olders. -fter collecting information the data were used to analyze information' 3raphical
tools were used to get clear picture of the situation.
a) Nature of the study: E.ploratory
b) Sources of inforation: Both primary and secondary information sources
$ere used to complete this report.
!riary sources of data: 4irect interview process in bank employees.
Secondary sources of data # 0anuals provided by Islami $ank &raining 5 6esearch
-cademy' 7ublished financial statement 5 /ebsite of "irst #ecurity Islami bank $angladesh
"nalytical Revie#:
7E#& -nalysis
#/)& -nalysis
3raphical -nalysis
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1.$ Scope of the Study
Islami $ank is the pioneer of welfare driven economy and promoter of balanced growth in a
country like $angladesh which has a poverty stricken contemporary economic background.
&o address the ongoing condition of I$ and their bright prospects is a vital issue to be
1.% &iitations
4uring preparing this report I have faced these following limitations8
Inadequate published information about bank
"inancial constraints to collect information
Insufficient information in websites of bank
1onfused definition about products and services of Islamic bank
Unsound database about Islamic banks in $angladesh $ank
$usy working environment
%ack of sufficient well informed officials
4ata could not been collected for confidentiality or secrecy of management
1.' Objectives of Islaic (an)in*
&he primary ob,ective of establishing Islamic banks all over the world is to promote' foster
and develop the application of Islamic principles in the business sector. 0ore specifically' the
ob,ectives of Islamic banking when viewed in the conte.t of its role in the economy are listed
as following8
&o offer contemporary financial services in conformity with Islamic #hari(ah9
&o contribute towards economic development and prosperity within the
principles of Islamic ,ustice9
)ptimum allocation of scarce financial resources9 and to help ensure equitable
distribution of income.
&hese ob,ectives are discussed below8
Offer +inancial Services:
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Interest-based banking' which is considered a practice of 6iba in financial transactions' is
unanimously identified as anti-Islamic. &hat means all transactions made under conventional
banking are unlawful according to Islamic #hari(ah. &hus' the emergence of Islamic banking
is clearly intended to provide for #hari(ah approved financial transactions.
Islaic (an)in* for ,evelopent:
Islamic banking is claimed to be more development- oriented than its conventional
counterpart. &he concept of profit sharing is a built-in development promoter since it
establishes a direct relationship between the bank(s return on investment and the successful
operation of the business by the entrepreneurs.

Optiu "llocation of Resources:
-nother important ob,ective of Islamic banking is the optimum allocation of scarce
resources. &he foundation of the Islamic banking system is that it promotes the investment of
financial resources into those pro,ects that are considered to be the most profitable and
beneficial to the economy.
Islaic (an)in* for -.uitable ,istribution of Resources:
7erhaps the must important ob,ective of Islamic banking is to ensure equitable distribution of
income and resources among the participating parties8 the bank' the depositors and the
1./ (asic !roperties of Islaic (an)in*
Islamic banking is emerging in an era when the world is settling down to a free market
economy and when phenomenal changes are taking place in the global economy. - free-
market economy visualizes three essential features - free trade' open capital market and
minimum governmental intervention. &he vagaries of protectionism and regionalism are
transforming the economy to free trade and globalize. &he changes could provide ample
scope for the Islamic banking to grow and work in competitive environment. Islamic
banking' being an integral part of an Islamic economic system can be practiced more
effectively in an environment' which conforms to the doctrine of Islam. &hus there are some
essential requirements for a successful Islamic banking' such as8
Supportive &e*al +rae#or) and S#ift 0udicial Syste:
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-n effective legal framework ensuring speedy ,ustice is essential for a good society' it is
more so for the success of Islamic banking' because its investment risk is more than that
of a conventional interest-based bank as its dealings are on profit and loss basis.
,isciplined -ntrepreneurship:
It would minimize cases of malfeasance and mismanagement. $esides' a banker must
e.tend from being merely a financier to a role-player in business. -lthough a 0urabaha
transaction in Islamic banking does provide an opportunity to a banker to share in
business' the Islamic banks generally limit themselves to being inactive partners for their
credit risk only. &he real entrepreneurial role of an Islamic bank needs' therefore' to be
Conceptual Chan*e fro Credit Ris) to Overall Ris) 1ana*eent:
/hile it is difficult to predict' with any degree of certainty' the operating results of an
enterprise and the magnitudes of profit and loss' all the same' it seems un,ust if the party
providing the capital is guaranteed a fi.ed and predetermined rate of return' and the other
party undertaking the enterprise is made to bear the uncertainty alone. Under the
circumstances' an Islamic banker has not only to focus on credit risk but also to view all
the business risks of the enterprises in which he has invested the bank money.
Stron* -thical 2alues:
&he Islamic economic system offers a balance between the two e.tremes of public or
social and private or individual ownership of property. &he success of Islamic banking in
a society is related to the e.tent of acceptability of the doctrine of trusteeship and
transformation of the self-interested and profit-oriented behavior of people into an
altruistic and value-oriented behavior.
Supree Shari3ah Council:
&he function of #hariah 1ouncil in maintaining Islamic banking activities in a country
within the orbit of Islamic in,unctions is dependent on its legal status and the e.tent of
implementation of its opinion.
&he opinions of #hari(ah 1ouncils of different countries may not necessarily be uniform.
&here is' therefore' a need for a #upreme #hari(ah 1ouncil representing 0uslim
community all over the world to decide about various issues con fronted by Islamic
banks. - beginning has been made in this direction by establishing the 1ouncil of the
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Islamic "iqh -cademy at !eddah' #audi -rabia under the auspices of the )rganization of
Islamic 1onference :)I1; but its role has to be augmented.
4nifor "ccountin* Standards:
&here is need for harmonization of financial reporting of Islamic banks in respect'
particularly' of the following9
&he significant accounting policies on which the statements are based should be
fully and clearly declared'
&he methods of translating foreign currency transactions would be appropriately
-ppropriate and sufficient disclosures regarding the quality of banks assets is of
much concern to the depositors'
-dditional disclosure of the nature of the financial contingencies and commitments
of the banks in their financial statements.
Coitted 1ana*eent:
If the management of a bank is determined to step into the business of Islamic banking' it
can easily evolve a strategy for the same' formulate a plan for a specific time - frame and
implement it accordingly.
!ro*ressive and 1odern outloo):
In order to ensure successful management in Islamic banks' there is need to apply all the
available modern tools of managing corporate business' including management of human
assets' offices' information resources' marketing etc.
(ody to -valuate Islaic +inancial Institutions:
In order to ensure quality and standard in management of Islamic financial institutions
and to build confidence of the general public in Islamic banking' there is need to establish
some professional body responsible to define professional standards and ethics and other
aspects of Islamic financial institutions. It may also certify the level of financial health of
such institutions.
5reatent in case of &oan default:
In time of loan default these banks don(t take any penalty for default which is one of the
ma,or differences between Islamic 5 conventional banks.
!articipatory financin*:
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Islamic banks believe in participatory financing. &hey do the investment through profit 5
loss sharing. &heir investment modes depend on mudaraba 5 murabaha principles which
require participatory financing of both the parties.
&endin* and investin*:
In Islam' there is a clear difference between lending and investing lending can be done
only on the basis of zero interest and capital guarantee' and investing only on the basis of
0udaraba :profit-and-loss-sharing;.
1./ Islaic (an)in* in (an*ladesh
Islamic $anking has e.perienced a phenomenal growth and e.pansion in $angladesh in the
backdrop of strong public demand and support for the system along with its gradually
increasing popularity across the world. -s a result' a number of full-fledged Islamic $anks
has been established' while a good number of conventional banks have come forward to offer
services compliant with Islamic #hari(ah through opening of Islamic branches along with
conventional ones. &here is also a trend of conversion of conventional banks into Islamic
It has' therefore' become necessary to ensure that activities of the fast growing Islamic $anks
are carried out properly and uniformly according to the principles of Islamic #hari(ah. /ith
this end in view' $angladesh $ank constituted a "ocus group comprising representatives of
the central $ank' a number of Islamic $anks and the 1entral #hari(ah $oard for Islamic
$anks of $angladesh to formulate an integrated guideline for conducting banking business of
the Islamic $ank<Islamic bank branches of conventional banks. $ased on the
recommendations of the "ocus group this guideline embodying different terminologies used
in Islamic $anking operations' definitions of the terminologies' the principles and modes of
deposits and investments has been prepared. It also dwelt upon the issues of liquidity'
maintenance of books of accounts and preparation of financial statements and other related
issues. &his guideline has been prepared mainly on the basis of $anking 1ompanies -ct
=>>=' 1ompanies -ct =>>? and 7rudential 6egulations of $angladesh $ank. 2owever' this
guideline should be treated as supplementary' not a substitute' to the e.isting banking laws'
rules and regulations. Incase of any point not covered under this 3uideline as also in case of
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any contradiction' the instructions issued under the $anking 1ompanies -ct and 1ompanies
-ct will prevail.
,efinitions of 5ers used in Islaic (an)in* Operations
&he following terms as used in this guideline' if not repugnant to the sub,ect or affairs' shall
have the following meaning8
@#hari(ah@ means such rules and regulations as have their origin in the holy AurBan and
#unnah to govern all aspects of human life.
@Islamic bank@ means such a banking company or an Islamic banking branch :es; of a
banking company licensed by $angladesh $ank' which follows the Islamic #hariah in
all its principles and modes of operations and avoids receiving and paying of interest at
all levels.
@Islamic $anking $usiness@ means such banking business' the goals' ob,ectives and
activities of which is to conduct banking business<activities according to the principles
of Islamic #hari(ah and no part of the business either in form and substance has any
elements not approved by Islamic #hari(ah.
@$ranch or $ranch )ffice@ means any branch or $ranch )ffice of Islamic $ank
1ompany or office or $ranch of such interest based conventional $anks which run
Islamic banking business.
@4epositor@ means some one who holds with any Islamic $anking 1ompany any
account namely 1urrent account based on -l-/adiah principles' #avings or long and
short term deposit accounts under 0udaraba principles.
@Investment@ means any such modes of financing which Islamic $ank 1ompany does
bin accordance with principles of #hari(ah or as per the #hari(ah approved modes like
0udaraba' 0usharaka' $ai-0urabaha' $ai-0ua,,al' Istisna' %ease' 2ire-purchase under
#hirkatul 0elk' etc.
@1lient@ means such a person or institution who<which has any business relationship
with Islamic $anking 1ompany.
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@1ompensation@ means such financial penalty as is imposed by a Islamic $anking
1ompany over and above the amount of installment when a client fails to repay $ankBs
investment on due dates as per the agreement e.ecuted by him
$angladesh is one of the largest 0uslim countries in the world. &he people of this country
are deeply committed to Islamic way of life as enshrined in the 2oly Aur(an and the #unnah.
Caturally it remains a deep cry in their hearts to direct and design their economic lives in
accordance with the precepts of Islam. &he establishment and commencement of Islamic
banks in $angladesh' is the true reflection of this inner urge of its people.
In our banking sector there operates + banks which are backed by Islamic #hari(ah and
approved principles according to Auran and #unnah. "irst Islamic bank is "#I$% which is
established in =>D3. &his was in fact the one of a kind bank in the #outheast -sia. )ther
players in the market are8
EEI0 $ank
"irst #ecurity Islami $ank %td
-l--rafah Islami $ank %td
#ocial Islami bank %td
I1$ Islamic $ank
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C"1-&S Ratin* Status of Islaic (an)s Operatin* in (an*ladesh

Strong: Shahjalal Islami Bank
Satisfactory: EXIM Bank , IBBL
Fair: Al-Arafah Islami Bank, First Security Islami Bank
Marginal: Social Islami Bank, IB Islami Bank

Chapter Two
About the Organization
2.1 +irst Security Islai (an) (an*ladesh &iited
&he establishment of "irst #ecurity Islamic $ank $angladesh %imited' is the true reflection of
this inner urge of its people' which started functioning with effect from 0arch 3' =>D3. &his
$ank is the first of its kind in #outheast -sia. It is committed to conduct all banking and
investment activities on the basis of interest-free profit-loss sharing system. /ith the active
co-operation and participation of Islamic 4evelopment $ank :I4$; and some other Islamic
banks' financial institutions' government bodies and eminent personalities of the 0iddle East
and the 3ulf countries' Islamic $ank Islamic $ank $angladesh %imited has by now earned
the unique position of a leading private commercial bank in $angladesh.
Corporate inforation: 6"s on ,iary 2778 of +SI(&)
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4ate of Incorporation =3th 0arch =>D3
Inauguration of =st $ranch
:%ocal office' 4haka;
3th 0arch =>D3
"ormal Inauguration =Fth -ugust =>D3
#hare of 1apital
%ocal #hareholders ?=.++G
"oreign #hareholders *D.F3G
-uthorized 1apital &k. ='. million
7aid-up 1apital &k. +'?=3. million
4eposits &k. FH*'=>3. million
Investments :including Investment in #hares; &k. F**'=+D. million
"oreign E.change $usiness &k. F++'+3>. million
Cumber of $ranches F==
Cumber of #0E #ervice 1enters F
Cumber of #hareholders *F=H?
0anpower >*DD
2.2 2ISION O+ +SI(&
&he vision of "irst #ecurity Islami $ank $angladesh limited is to strive to achieve superior
financial performance be considered a leading Islamic bank by reputation and performance.
&o establish and maintain the modern banking techniques
&o ensure the soundness and development of the financial system based on Islamic
principles and to become the strong and efficient organization with highly motivated
professionals' working for the benefit of people' based upon
-ccountability' transparency and integrity in order to ensure stability of financial
Encourage savings in the form of direct investment.
&o encourage investment particularly in pro,ects which are more likely to lead higher
2.9 1ISSION O+ +SI(&
&o establish Islamic banking through the introduction of a welfare oriented banking system
and also ensure equity and ,ustice in the field of all economic activities' achieve balanced
growth and equitable development through diversified investment operations particularly in
the priority sectors and less developed areas of the country' to encourage socio-economic
uplift and financial services to the low income community particularly in the rural areas.
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2.4 Special features of
&he bank is committed to run all its activities as per Islamic #hariah. "#I$% through its
steady progress and continuous success has earned the reputation of being one of the leading
7rivate #ector $anks( of the country. &he distinguishing features of "#I$% are as follows8
-ll activities are conducted on interest-free banking system in accordance with
Islamic #hari(ah.
Investment is made through different modes permitted under Islami #hari(ah.
Establishment of participatory banking instead of banking on debtor-creditor
Investment income of the $ank is shared with the 0udaraba depositors according to a
ratio to ensure a reasonable fair rate of return on their depositors.
Its aims are to introduce a welfare-oriented banking system and also to establish
equity and ,ustice in the field of all economic activities.
It e.tends #ocio-economic and financial services to the poor' helpless and low-income
group of the people for their economic enlistment particularly in the rural areas.
It plays a vital role in human resource development and employment generation
particularly for the unemployment youths.
Its aim is to achieve balanced growth and equitable development of the county
through diversified investment operations particularly in the priority sectors and in the
less developed areas.
It e.tends co-operation to the poor' the helpless and the low-income group for their
economic development
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2.5 MANAGMNT O! !S"#$
"irst #ecurity Islami $ank $angladesh limited is being managed by a board of directors
comprising foreigners and local. -n e.ecutive committee is formed by the board of directors
for efficient and smooth operation of the $ank. $esides a management committee looks after
the affairs of the bank.
Or*ani:ational Structure of the Copany
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+inancial !erforance of +SI(& at a *lance
277; 2778 2717 2711 2712
!,"""#"" !,"""#"" !,"""#"" $","""#"" $","""#""
%,&'(#)" *,(!'#"" *,)"$#'" (,&!%#"" ',$&&#'"
r3s e.uity
),**$#$( $",(*!#+' $(,+!&#&( $),!&%#") %*,'$+#)$
$,!",+!+#'' $,)),$$!#%& %,!","$%#&+ %,)),"$&#$+ *(",'*)#(+
$,"&,&&+#(% $,*%,($+#(" $,'',*%!#%+ %"%,$$!#(! %((,%+%#$(
+&,$&)#*$ $,$&,$*%#)* $,'!%)'#*% $,)&,!)'#!! %%!,&!%#($
to deposit
)'#)+, )!#&&, )&#$*, )+#"), )&#)!,
-=port *',$'+#"" !$,$**#"" '','+"#"" +*,+'%#"" $"',(%(#""
Iport &(,!%!#"" +',)&"#"" $,*&,")'#"" $,'),*%+#"" $'$,%*"#""
Reittance *',+()#"" !*,)$+#"" )(,$(*#"" $,(",("(#"" $+(,&$'#""
+#((, +#(*, $"#'$, $"#&%, $$#'!,
Cost of
)#!), +#*(, +#"', +#!', )#&',
No. Of
$'+ $&' $)' -%"' -%*$
Chapter 5hree
"nalytical !art of +SI(&
%.& 'ST Anal(sis of "sla)i #an*ing S(ste)
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!olitical > -conoical > Social > 5echnolo*ical
!-S5 analysis: (an*ladesh !erspective
7E#& analysis is a comprehensive analytical process to trace the competitive position in the
general business environment of any country. &he countrywide various factors under the four
terms specified above categorize the status of any business concern.
!olitical factors:
6egional legislation' legal procedure' law and order of a country influence the
banking mechanism to a greater e.tent. )ur provision is more or less friendly towards
the banking sector. 7rinciples directed by the regulatory authority and international
bodies( impact the banking performance of our country.
347' corporate income ta. provision and distribution channels' market routes and
customer base are components of economical factor. )ur country background and
increasing customer demand raise the importance and evolution of Islamic banking
Societal factors:
&he biggest proposition of Islamic banking system is the religious perception in minds
of people since most of the residents of our country are 0uslims. 0edia support' life
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style' ma,or events like 6-0-4-C' Eid festivals and 2a,, saving propensity also
stimulate the advancement of Islamic banking.
5echnolo*ical aspect:
&echnological factors involve competitive development' research methodology'
revolutionary online transaction system' innovative potentials' one stop service
delivery system manipulate the Islamic shari(ah powered banks operating in our
9.2 S?O5 "N"&@SIS
S5R-NA5B ?-"CN-SS O!!OR54NI5@ 5BR-"5S
#/)& analysis is a tool for screening an organization and its environment. It is the first stage
of planning and helps marketers to focus on key issues. It helps to detect the possible threats
and opportunities in the market and viability. It helps recognize internal strength and
overcome weaknesses.
It is the scanning of the internal and e.ternal environment is an important part of the strategic
planning process. Environmental factors internal to the firm usually can be classified as
strengths' or weaknesses' and those e.ternal to the firm can be classified as opportunities or
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Islamic $anking will e.plicitly reorganize the deplorable condition of the poor and
marginalized segments of society. $anking products which comply with Islamic law are
becoming increasingly popular' not only in the 3ulf countries and far eastern states like
0alaysia' but also in other developed markets such as the United Iingdom. 6eputed
banks like #tandard 1hartered' 1itibank' and 2#$1 are operating interest free windows
in several /est -sian countries' Europe and U#-. &here is a huge potential market in
$angladesh for Islamic banking products.
0oreover' Islamic banking helps the weaker and hapless section of the society through
various financial products. Islamic banking finances :through its !oint ventures'
partnerships and leasing;are provided by investors or banks to the borrowers with a
condition that financial risk is to be borne by the investors' and other risks to be borne
by the borrower. &his helps even the indigent and vulnerable to get finance at a no risk
and cost basis' but definitely requires other credits like strong business proposal'
rational planning' skilled hands and specialized art to attract the financier. $etter
business proposals succeed in fetching funds as opposed to the pro,ects with
comparatively poor propositions. #uch inclusive growth will aggrandize the
$angladeshi economy.
&here is no room for diversion of funds. &herefore' investment in consonance with
Islamic banking principles will surely boost the engine of economic growth in our
1ommercial banks cannot raise deposits without promising a specified rate of return to
depositors' but under #hari(ah' returns can only be determined post-facto depending on
profit. -lso banks have to maintain a #tatutory %iquidity 6atio :#%6;' which involves
locking up a substantial portion of funds either as cash' gold or in government
securities. #uch cash will not get any return' keeping it in gold is risky as it could
depreciate and government securities come with interest.
/e have seen the fall of giants in the world of financial sector like %ehman $rothers in
the aftermath of the U# sub-prime mortgage crisis. &herefore' it is of paramount
importance to be strict about credit rating system' to circumvent any chance of further
bankruptcy. #ince Islamic banking adheres to strict credit rating
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system and prohibits indebted economic agents to avail more debt finance' it could save
our financial and economic enterprises from bankruptcy.
6eligious appeal.
Islamic banking needs to introduce corporate governance with transparent accounting
standards. It needs to perform detailed evaluation before embarking 7rofit %oss
#haring #cheme' which demand a pool of highly trained professionals. &he imparting
of professional training is costly. 4etailed principles are still to be laid down and
techniques and procedures evolved to carry them out.
&he financial institutions in $angladesh comprises of $anks and Con $anking
"inancial Institutions. $anks in $angladesh are governed through some 6egulatory
-cts. $ut Islamic banking operations sometimes contradict with the set laws. %ike8
$anking 6egulations -ct prohibits bank to use any sort of immovable
property apart from private use Jthis is against I,arah for home finance.
$anking 6egulations -ct requires payment of Interest which is against
It is observed that inability to evaluate a pro,ectsB profitability has tended to act
against investment financing. #ome borrowers are frustrated to the banks appraisal
efforts as they are reluctant to provide full disclosures of their business.
%imited appeal outside core customer base.
/idely acceptable and reliable techniques are yet to be devised.
-dverse selection has been one of the ma,or impediments in the world of Islamic
-mong the other disincentives from the borrowerBs point of view are the needs to
disclose his accounts to the bank if he were to borrow on the 7rofit %oss #haring
basis. 2owever' many small-time businessmen do not keep any accounts' leave alone
proper accounts. -nd large conglomerates do not like to disclose their real accounts to
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anybody. &he widespread lack of business ethics among certain business community
will be another ma,or hurdle in the path of Islamic banking in $angladesh.
&he practices in use by the Islamic banks have evoked questions of morality. $ai
muBa,,al :sale with deferred payment; and 0urabaha :cost-plus financing; are
permitted in the #hari(ah under certain conditions. /hat are being done in many
countries are fictitious deals which ensure a predetermined profit to the bank without
actually dealing in goods or sharing any real risk. &his is against the letter and spirit
of #hariah.
"astest growing religion in the world.
&he size of the market will be very large if it can be targeted properly.
In the name of religious faith' people are looking for interest free banking and finance.
It is significant to mention here that Islamic banking is not meant for 0uslims only
but non 0uslims may also avail the benefit of it. -nd it is feasible to have a parallel
banking system based on #hari(ah along with a conventional one.
-fter ?<*' most of the countries started pulling out their investments from the U# and
Europe because of the fear of freezing of assets. -nother reason could be the
slowdown in the economies of western countries. - growing $angladeshi economy
has created a huge enthusiasm among Islamic nations as it sees the unlimited
opportunities it can avail.
Islamic banking is an effective mechanism to defeat the liquidity and inflation
problems along with allowing comprehensive growth. "or real inclusive growth' we
have to ensure increase in income and employment status of workers in all segments.
If Islamic banking is introduced' the inadequate labor capital ratio' for informal sector
workers associated with agriculture and manufacturing industries could be resolved
through equity finance' which might be a revolution in our agriculture and
unorganized sector. /ith improved labor capital ratio' our vulnerable workers
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associated with agriculture and unorganized sector might be able to compete
effectively with the formal sector workers. &hus Islamic $anking may financially
empower ma,ority of our work force.
Islamic banking should not be a religion based banking business' but could be
profitably used to resolve our issues pertaining to economy.
0oving towards more #hari(ah compliant services offered by mainstream banks.
It may bring financial segregation in the economy. &he compartmentalization of
#hari(ah compliant and Con #hari(ah 1ompliant banking might be dangerous for the
stability of our financial environment.
Chapter !our
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!unctions of !S"#$
General #an*ing+ "n,est)ent - !oreign .change
Operations of !S"#$
General #an*ing Operations
3eneral banking provides the foundation of banker J customer relation ship through opening
account. &his is the busiest department and the daily transactions of concerned to the
customers for drawing or depository money ' selling of the instrument to them for remittance
purpose' collection of their instruments providing other services to them and keep customer
section busy.
Usually the following sections<departments are involved to perform the general banking
1ash #ection
$ills 5 6emittance #ection
1learing and 1ollection #ection
-ccounts #ection
&he ma,or general banking operations of "#I$% are
0obilizing deposits through opening different
types of account.
6eceipts and payments of cash.
7assing' cancellation' issuance and payment of
0aintenance of Kault and #trong 6oom under
!oint custody for safe keeping cash and vouchers.
2andling transfer transactions.
)perations of 1learing 2ouse. 7roper house keeping ' maintenance of $ooks
and 6ecords and 1omputer :eI$# #oftware;
0aintenance of -&0' Electronic "unds &ransfer' Internet $anking' 7hone
$anking etc.
Page | 22
0aintenance of security in transaction hour by armed security guard.
1orrespondence' receipt 5 dispatch.
7ersonal administration
7roper house keeping ' maintenance of $ooks and 6ecords and 1omputer
:eI$# #oftware;
0aintenance of -&0' Electronic "unds &ransfer' Internet $anking' 7hone
$anking etc.
0aintenance of security in transaction hour by armed security guard.
1orrespondence' receipt 5 dispatch.
7ersonal administration
1obili:in* ,eposits
Islami $ank accepts deposits under two principles viz. -l-/adeah principle and 0udaraba
principle. 1urrent account is operated on -l-/adeah principle and all other deposit accounts
on 0udaraba principle of Islamic #hari(ah.
&he word B-l-/adeahB has been derived from the -rabic word B/adaByunB which means to
keep<to deposit<to give up<-manat.
In case of -manat' $ank<any other person<institution can not use' invest' and amalgamate the
funds of -manat with the banks<his<its other funds without prior permission of the owner of
the -manat.
&hus' in -l-/adeah account there is a provision to obtain prior permission from the owner of
the fund to use' invest' amalgamate the said fund with their<other funds and return the same
within banking hour on demand. $ank is here L0uaddah Elaihe( and depositor is L0uaddi
&he word B0udarabaB has been derived from -rabic word B4arbB<B4arbunB which means
M&ravelN. &hus the word L0udaraba( means travel for undertaking business.
0udaraba is a form of partnership in profit whereby one party provides capital and the other
party provides skill and labour.
Page | 23
&he provider of capital is called L#hahib-al-0al( or the L6abb-ul-0al( :the financier or owner
of the fund; and acts like a sleeping or dormant partner while the provider of skill and labour
is called L0udarib( :entrepreneur<organizer; who provides the entrepreneurship and
management for carrying on any venture' trade' industry or service with the ob,ectives of
earning profits.
$oth the parties share the profit as per pre-agreed ratio and the losses' if any' being borne by
the provider of capital i.e. L#hahib-al-0al( e.cept if it is due to breach of trust' misconduct'
negligence or violation of the conditions agreed upon by the 0udarib becomes liable for that.
&he 0udarib is in the nature of a trustee as well as an agent of the business. 2e is to work
with honesty and sincerity and to e.ercise the ma.imum possible care and precaution in the
e.ercise of his functions.
,eposit !roducts of +SI(&
-l-/adeah 1urrent -ccount
0udaraba #avings -ccount
0udaraba #pecial Cotice -ccount
0udaraba &erm 4eposit -ccount
0udaraba 2a,, #avings #cheme
0udaraba #avings $ond #cheme
0udaraba #pecial #avings :7ension; -ccount
0udaraba 0onthly 7rofit 4eposit #cheme
0udaraba 0uhor #avings -ccount
0udaraba /aqf 1ash 4eposit -ccount
0udaraba "oreign 1urrency 4eposit :#avings; -ccount
Page | 24
"l<?adeah Current "ccount
&he ma,or features of this account are as follows8
&he depositor can deposit any amount in this account and the bank receives money
from the clients for safe-custody with the condition to return the money on demand.
&he depositor can withdraw any amount at any time through cheque or any other
acceptable means retaining the minimum balance in the account.
-s the depositors do not take the risk of losses with -l-/adeah account they are not
entitled to any profit from use of their deposits by the investors.
1heques' bills etc. may be collected in this account.
3ovt. e.cise and incidental charges for safe keeping of the depositors( money or for
services rendered to them can be realized from the account as per rule.
1udaraba Savin*s "ccount
&he ma,or features of this account are as follows8
&his account may be opened in single or ,oint name of the person :s; or any
organization acceptable to the $ank.
&he accountholders are generally allowed to deposit several times as they require but
in case of withdrawal of money there are some restrictions as per rules and practices
of the commercial banks.
&he $ank is authorized to invest the 0udaraba funds at the risk of the depositors.
&he $ank will arrange proper deployment of funds without any intervention of the
&otal profit resulting from such investment will be distributed between the $ank and
the depositors as per agreed ratio.
If any loss is incurred' it is to be borne by the depositors. 2owever' in "#I$% a
reserve fund named as LInvestment %oss )ffsetting 6eserve :I%)6;( has been created
to meet up such losses and other purposes.
1udaraba Special Notice "ccount
&his account is also conducted under 0udaraba principle. &he very special character of
this account is to serve seven days prior notice for any withdrawal.
Page | 25
1udaraba 5er ,eposit "ccount
0udaraba &erm 4eposit -ccount is also conducted under 0udaraba principle of
Islamic #hari(ah.
3enerally deposit is accepted in different tenure of 3'H'=F'F? 5 3H months of
minimum &k.=.
Co withdrawal facility is allowed here.
2owever the depositors may en,oy premature encashment facility or may avail
LAuard( against the lien of 0&46 as per norms of the $ank. If the clients encash the
0&46 before 3 months' no profit is allowed.
0&46 holders can withdraw profit yearly basis against =:one; year and above
0&46. In case of no withdrawal of profit' the same to be considered principal
amount for further period.
If 0&46 is not encash within =:one; month of its maturity date' it is automatically
renewed for a further same period.
1udaraba Bajj Savin*s Schee
-ny 0uslim intending to perform 2a,, can open this account for accumulating
savings with a view to meeting 2a,, e.penses and may select F* alternative choices
based on duration from = year to F* years.
&he $ank accepts deposits on installment basis under 0udaraba principle.
1onsidering the religious aspects and to inspire the individual to perform 2a,,' the
$ank gives here the highest weightage in distribution of profit in compare to other
7remature encashment is allowed. &o avail the highest weightage which is =.3* for
above = years term and =.3 up to = years term' the accountholder has to show the
proof of performing 2a,,.
It is opened in the name of single person.
0udaraba #avings $ond #cheme
Page | 26
1udaraba Savin*s (ond Schee
&he person :s; aged =D years and above shall be eligible to purchase $ond :s; in
single name or in ,oint name.
Educational Institutions' 1lubs' -ssociations and other non-trading and non-profit
socio-economic institutions shall also be eligible to purchase $ond:s; in the name of
the institutions.
3uardian:s; shall be allowed to purchase $ond:s; ,ointly with a 0inor mentioning the
age of the 0inor.
&he profit of $ond may be withdrawn by the bondholder once in a year. Co profit
shall be paid for the period after maturing of the $ond' if not encashed on maturity.
&he terms of $ond are *-year 5 D-year.
-vailable denominations are &k.*'9 &k.='9 &k.F*'9 &k.*'9
&k.=''9 &k.*''9 5 &k.=''.
7resent weightages are =.= 5 =.F* respectively.
1udaraba Special Savin*s 6!ension) Schee
"#I$% has introduced such #cheme :viz. 0##; so that a person can get the
opportunity to build-up savings by contributing small monthly installments for getting
an attractive amount at the end of a specific term of maturity.
3enerally the terms of maturity are *-year 5 =- year. Under this scheme' account
may be opened for monthly deposits of &k.=9 &k.F9 &k.*9 &k.=' and
multiple of &k.=' upto &k.F' only.
-ny bonafide citizen of $angladesh of =D years and above can open this account in
his own name or in the name of 0inor.
&he applicant shall have to introduce by a bonafide account holder of the $ranch
where he intends to open account or any client of any $ranch of "#I$% or any
respectable person known to the $ank.
&he 0## account can be transferred from one $ranch to another $ranch.
Page | 27
&he depositors may issue written standing instruction for monthly transfer of
installment from any other account maintained with the same $ranch for credit to his
0## account. &he client has to pay a charge of &k.*<O only for each such transfer.

$enefits of full weightage with yearly cumulating of profit shall become payable if
withdrawn on maturity. Co profit shall accrue if the account is closed within =:one;
In case of premature encash<withdrawn after =:one; year' profit shall be payable at the
rate applicable for 0udaraba #avings 4eposits. In case of = years term 0## account
encashed after * years but before = years' profit shall be payable at the rate
applicable to * years term 0## account for * years and at the rate of 0udaraba
#avings 4eposit for the subsequent period.
1udaraba 1onthly !rofit ,eposit Schee
-ny individual may open an account under this #cheme by depositing a minimum
amount of &k.=' ' and multiples thereof at a time for 3 or * years.
0onthly provisional profit is given to the account ,ust after completion of 3 days
from the date of opening of the account.
&he profit amount shall be ad,usted after completion of each accounting year after
declaration of final rate of profit.
1udaraba ?a.f Cash ,eposit "ccount
"#I$% has introduced 0udaraba /aqf 1ash 4eposit -ccount through which fund is
pooled for the purpose of /aqf from the well-off and the rich people of the society.
&he income to be generated thereon may be spent for different benevolent purposes
including various religious' educational and social services.
Under this scheme one may create 1ash /aqf at a time or may start with a minimum
deposits of &k.='<- only and the subsequent deposit shall be made by
installment:s; in &housand &aka or in multiple of thousand &aka. &he highest
weightage is given here for encouraging /aqf system of Islam which is now =.3*.
7rofit from this account is utilized as per instruction of the -ccountholders.
Page | 28
1udaraba +orei*n Currency ,eposit 6Savin*s) "ccount
0udaraba "oreign 1urrency 4eposit -ccount has been introduced by "#I$% under
0udaraba principle. &he following categories of people can open this account.
$angladeshi nationals residing' working and earning abroad9
"oreign nationals residing in $angladesh and also foreign companies
registered abroad but operating in $angladesh9 and
"oreign missions and their e.patriate employees.
Chart 4.1
*)#+%, *+,
$)#&!, $+,
$)#$', $),
+#$%, +,
'#), &,
(#*%, (,
$#'&, %,
"#"$, ",
%#%!, %,
5ypes of "ccount in 91.12.2712
Page | 29
5rend of ,eposits over years:
Pear &**+ &**, &*'* &*'' &*'&
4eposits =+++>.?F =3F?=>.? =HH3F*.F> FF==*.?* F??F>F.=?
"#I$% is the bank which is able to collect highest amount of deposits among the whole
banks. Co one can compete with this bank. "rom F* to F> the amount of deposits is ,ust
doubled. "or this reason the bank has the great opportunity to invest its huge amount of
money. -nd at the same time this never faces any type of liquidity crisis in spite of
maintaining this huge amount of deposits. Cow "#I$% maintains more than &I. F lac million
as deposit.
&ocal Reittance
6emittance represents transmission<transfer of money from one place to another. %ocal
remittance represents remittance that takes place within the territory of a country.
Page | 30
In Million
$anks have a wide network of branches all over the country and offer various types of
remittance facilities to the public<customer<client etc.
.odes of ocal /emittance#
&here are four modes of remittances which are as under8
:a; 44 - 4emand 4raft
:b; && - &elegraphic &ransfer
:c; 7) - 7ayment )rder
:d; )nline banking
,eand ,raft
-ccording to #ection D* :-; of the Cegotiable Instruments -ct' a demand draft is Man order
to pay money drawn by one office of the bank upon other office<branch of the same bank for
a sum of money payable to order on demandN.
Issuance of ,,
- prescribed -pplication "orm bearing Co. "-F is required for effecting remittance through
4-4 and the following columns should be filled in properly8
Came and address of the applicant.
&elephone Co. :if any;.
#ignature of the applicant
Came of the payee
4rawee branch
-mount in figure and words.
1ommission is to be realized <charged as per 2ead )ffice circular.
-t present min. &k. F3<-
"or &k. =-F' :1om. FQKat 3;' but for &k.
F'= and above &k. =<thousand and vat R .=*G.
!ayent of ,raft
&he drawee branch should e.ercise proper care while paying drafts.
Page | 31
/hen the draft is presented to the drawee branch for payment' the particulars of the
draft is<are checked with the advice and signature :s; therein to be verified.
7ayment of the 44 has not been stopped is to be ensured
Kerification of &est no' if any' is to be done
If the 44 issued for cash payment L-<c. 7ayeeB rubber stamp( should be cancelled and
a letter requesting the drawee branch to pay the 44 in cash should be issued under
sealed cover and signature of the payee should be attested.
44 -dvice should be sent on the same day.
&he drawee branch should ensure that the payment of the instrument is made in due
-s the demand draft is payable to order it is duty of the paying branch to obtain
identification of the payee if payment is desired over counter.
If the 44 is presented through a bank' the endorsement:s; appearing on the
instrument should be prima-facie in order of certification by the collecting banker.
Cancellation of ,raft
#ome times the purchaser returns the draft to the issuing branch and requests for
payment by cancellation thereof. In such case we must make sure that the request is
from the genuine purchaser' that the draft was issued by him and is not a fake one and
that he has not already issued a duplicate thereof. 2owever' if the purchaser of the
draft makes a request to cancel the draft and refund him the amount of draft' the bank
should do so after taking the following precautions8-
$ank should satisfy itself that the draft has not been delivered to the payee. #ection ?H
of the CI -ct states that the making' accepting and endorsement of a negotiable
instrument is completed only when it is delivered to the person concerned. &hus' a
banker should refuse to cancel the draft' if it is found that the draft has been delivered
to the payee. -s a matter of fact' the purchaser losses the right of getting the draft
cancelled as soon as he sends the drafts to the payee. If the purchaser wants to get the
draft cancelled after delivering it to the payee he can do so only with the consent of
If the draft is sent by post' the act of posting itself proves the delivery of the draft to
the payee. &his is because the post office is taken as the agent of the payee of the
Page | 32
55 65ele*raphic 5ransfer)
&elegraphic transfer is so far the quickest method of transferring funds from one place to
another. #ome times' the remitter of the funds requires the money to be available to the payee
immediately. In that case the banker is requested by the remitter to remit the funds over
telephone. It is an instruction conveyed by telegraph<tele.<telephone to the drawee branch for
paying certain amount of money to a specified person.
Issuance of 55
&& application form :"-FF; is to be filled in by the remitter with full particulars signature of
the remitter is to verify by the bankBs officials. 0oney to be received in cash or by debiting
remitters account with commission and &ele.<&elephone charges. Entry should be given in
$-?? branch wise serially under supervision of authorised official. 0essage to be passed
immediately to the drawee branch under secret test by &ele.' &elephone' &elegram followed
by I$1- for confirmation. 1ost memo "-F3 to be issued and handed over to the client.
!ayent of 55
&he amount transferred by && is either credited to the account of the beneficiary' if he<she
maintains an account' or paid by means of a && payment order if he<she does not maintain an
account. 1ash is paid to the beneficiary on proper identification' if he<she has no account.
!ayent Order
7ayment order is meant for making payment of the banker(s own or of the customer(s dues
locally and not for affecting any remittance to an out station. In a sense' the payment order is
used for making a remittance to the local creditors.
Issue and !ayent of !ayent Order
"-=>' should be filled in properly by the customer. &otal amount should be deposited through
1ommission to be realised as per bank(s circular8
"rom &k. =<- upto &k. ='<- &k. =*<-
"rom &k. ='=<- upto &k. =''<- &k. F<-
"rom &k. =''=<- upto &k. *''<- &k. 3<-
"rom &k. *''=<- upto &k. =''<- &k. ?<-
Page | 33
"rom &k. =''=<- and above &k. *<-
7rinted 7ayment )rder leaf should be filled in as per "-=> and signed by two
authorised officers.
&he instrument should be handed over to the purchaser.
7ayment )rders are required to be discharged by the beneficiary' where applicable on
revenue stamp of appropriate value against in cash or through account.
Online ban*ing/
"#I$% is the only bank in $angladesh that has developed and implemented core banking
software eI$# having online features by its own software engineers based on open source
technology and oracle. &he online banking section of "#I$% does the following activities8
7ost all kinds of online related vouchers
7ost all kinds of deposits accounts
Issue balance confirmation letter to the -<1 holder
1heck daily computer transaction list
7repare I$1-<I$4- vouchers etc.

Other *eneral ban)in* operations of +SI(&
Sale of Share: Islamic banks sell primary shares of a company registered with the
#tock E.change in e.change for a commission. &his contributes to the raising of
capital for a company. 1ompanies make arrangements with Islamic $anks to issue
shares for public subscriptions. &hese are known as Mnew issuesN which a company
intends to sell to the public. Islamic banks are the most effective method of selling
the shares to the public.
5ransfer of 1oney: Islamic banks transfer money from one place to another place
as per the order of its customers through 0ail &ransfer :0&;' &elephonic &ransfer
:&&;' 4emand 4raft :44;' and 7ay )rder :7);. &hey receive a fee or commission
Page | 34
for performing such services. 1ustomers benefit from these services' as it helps
them to fulfill their financial needs timely.
1aintenance of (ud*et "ccounts: Islamic banks can maintain budget accounts
for their customers. %aborers' who earn regular monthly wage' may deposit money
into a budget account. &he bank pays the client(s bills such as8 ta.es and donations
for e.ample' on the client(s behalf. &hus the client benefits because his financial
affairs are handled automatically and his monies are set-aside on a monthly basis to
handle bills that are due quarterly or annually. In e.change the bank receives a fee
for providing this service. )nly the -l /adiah 1urrent account and 0udaraba
#avings account holders can maintain budget accounts with Islamic banks.
Settleent of 5ransactions: Islamic banks pay $ills of E.change' and 1hecks of
their customers to settle transactions with third parties. &hus' financial relations
between the bank and its customer' and the customer and any third party :the
$eneficiary; of the bill or check are maintained.

!rovidin* (an) Auarantee: - bank guarantee is a written agreement that
guarantees the performance or payment of debt by a bank client to a third party.
Under the agreement' if the customer fails to perform in the capacity stipulated' the
bank is held responsible for ensuring performance or payment of debt. Islamic
$anks provide this guarantee based upon cash held on deposit by taking a mortgage
on other assets. In some cases the bank can act as a guarantor taking a partial
mortgage on an unsecured basis. #ome Islamic $anks receive a commission based
on the lower of FG or 3G of the amount guaranteed or simply incidental e.penses.
"ccount 1aintenance "ctivities: &he opening of an account is the beginning of
the relationship between a banker and a customer within the framework of banking
deposits. &he account is established with a standard proforma contract' which must
be signed by the customer who wishes to deal with the bank concerned. - number
of subsidiary operations are related to the account opening operation' such as the
receipt of deposits into the account' payment of checks drawn on the bank and the
e.ecution of bank transfers and payment orders. "urthermore' among the services
Page | 35
rendered' the bank must prepare and communicate to its customer periodic
statements of the account.
Safe Custody: - safe custody account is a small bo.' which is maintained in a
secured area within the bank. &his bo. is ad,oined to other bo.es belonging to other
customers of the bank. Each bo. has two keys. &he banker has a key and the
customer has a key. $oth keys must be used simultaneously to open the safe custody
bo.. &hus' the client is assured his assets are safe in the custody bo. due to the dual
control. 1lients may access their bo. during normal business hours and can step into
a private room in order to add items of value to the safe custody bo. or remove
items from the safe custody bo..
Islamic $anks charge a relatively low fee for this service. &he main ob,ective of
offering this service is one of convenience which the bank hopes will attract
additional customers.
Openin* of &DC: Islamic $anks also offer %etters of 1redit :%<1; for domestic and
international trade on a commission basis. &hus' they facilitate business
relationships between importers and e.porters through this service.
Issue of Solvency Certificate: Islamic banks issue solvency certificates to their
customers as per an order received. &his certificate is required for business
purposes' to acquire assets on an installment basis' or to go abroad for study.
(usiness "dvisin* Service# Islamic $anks can provide business-advising
services :$-#; to its clients as well. &he bank offers counseling on technological
issues' marketing and other important business information to industrial
entrepreneurs of small and medium sized business of any nature. - banker should
be an e.pert in banking as well as in business to provide $-#. 0oreover' he will
conduct an e.tensive survey of the customer(s business.

5ransaction of +orei*n Currency: Islamic banks buy and sell foreign currencies.
&hey allow their customers to draw local currency against foreign currency
deposited in a foreign currency account with the bank.
Page | 36
!ublication ?or)s: Islamic banks publish books' ,ournals' booklets' pamphlets to
advertise the bank(s services. Important information related to trade' commerce and
industry are published in these forums to address the needs of the banks customers.
#uch services have created social awareness about Islamic banking in the economy.
&oday' more people are familiar with the terms of Islamic banking like $ai-
0urabaha' 0udaraba' and 0usharaka. In addition' they also know the special
features of the Islamic Economy.
-=chan*e of Inforation: Islamic banks e.change information with other banks'
organizations and individuals pertaining to the credit worthiness of its customers. In
addition' banks seek this information prior to e.tending a loan to a prospective
customer. &hus the bank can be assured it has made a good decision on whether or
not to make the loan to the customer.
+inancial help: Islamic banks provide financial help to different organizations
through paid advertisements describing various services that the bank offers. &hese
advertisements increase the competitiveness of Islamic banking products in the
market by creating awareness among the people.
4se of "utoatic 5eller 1achine: Islamic banks offer -utomatic &eller
0achines :-&0s; to allow customers access to their accounts after the banks are
closed. &he -&0 provides service twenty-four hours a day' and seven days a week.
It is electronically imprinted with the customer(s branch and account number. &he
customer inserts the card into a machine and on a keyboard he taps out his personal
identification number :7IC;. &he card will only operate if the correct 7IC is keyed
in thus safeguarding the customer and the bank in the event of loss or theft of the
card. 2aving inserted the card and keyed in the correct 7IC' the customer then has a
variety of services offered by the -&0. 1ash dispensing is the most important but'
in addition' most machines allow check books to be ordered' account balances to be
obtained and statements to be ordered.
Page | 37
Issue of Eard Cards: Islamic banks can issue Aard 1ards :A1; unto certain limits
to their valued customers. &he card will enable a holder of it to purchase goods from
the market without cash or a check. &he merchants indicate clearly which cards they
will accept. -t the point of purchase' the 1ardholder presents his card to the
merchant who runs the card through a special machine' which imprints account
information on a form to be signed by the 1ardholder. &hus' a customer can make
his purchase without having to pay cash on the spot. In addition' the :A1; can also
be used like an -&0 card at participating banks.
Issue of 5ravelers Che.ues: Islamic banks also issue &ravelers 1heques :&1;.
&hese are special types of cheques drawn on the issuing bank and signed by the
person to whom they are issued. &he issuing bank guarantees the payment of these
cheques. &hus' it is accepted worldwide without a question. /hen the item is
presented for payment' the person to whom it was issued needs to countersign it.
&he signature should be similar to the one that already appears on the cheque.
Cormally a passport is required as proper identification when the check is being
used for payment. If a &1 is lost or stolen it can be replaced again through a local
branch<agent of the issuing bank sub,ect to verification of the signature.
+actorin* Service: &he factoring agreement covers assessment of creditworthiness
of all potential buyers and provides complete protection against bad debt' provided
the credit limits are not e.ceeded. &he small and medium sized business houses
benefit from this service of Islamic banks. In e.change for this service' these
businesses pay a service charge or commission to the bank. -s part of this service'
the bank will maintain sales ledger records' and control the finances of the client(s
business house. &his makes business easier for the wholesalers.
Page | 38
Mo0es of "n,est)ent of !S"#$
Investment is the action of deploying funds with the intention and e.pectation that they will
earn a positive return for the owner. "unds may be invested in either real assets or financial
assets. /hen resources are used for purchasing fi.ed and current assets in a production
process or for a trading purpose' then it can be termed as real investment. #pecific e.amples
of financial investments are8 deposits of money in a bank account' the purchase of
Mudaraba #avings $onds or stock in a company. #ince Islam condemns hoarding savings
and a F.* percent annual ta. :Zakat; is imposed on savings' the owner of e.cess savings' if
he is unable to invest in real assets' has no option but to invest his savings in financial
Investment is one of the important functions of "#I$%. "#I$% collect 4eposits on -l-
wadeah and 0udaraba principles and deploy the collected fund using shari(ah-based
0echanism 5 0odes of Investment.
0b"ectives and principles of investment
&he ob,ectives and principles of investment operations of the $ank are8
&o invest fund strictly in accordance with the principles of Islamic #hari(ah.
&o diversify its investment portfolio by size of investment' by sectors :public 5
private;' by economic purpose' by securities and by geographical area including
industrial' commercial 5 agricultural.
&o ensure mutual benefit both for the $ank and the investment-client by professional
appraisal of investment proposals' ,udicious sanction of investment' close and
constant supervision and monitoring thereof.
&o make investment keeping the socio-economic requirement of the country in view.
&o increase the number of potential investors by making participatory and productive
&o finance various development schemes for poverty alleviation' income and
employment generation with a view to accelerating sustainable socio-economic
growth and uplift of the society.
&o invest in the form of goods and commodities rather than give out cash money to
the investment clients.
Page | 39
1echaniss F 1odes of Investent of +SI(&
I) (ai< 1urabaha 6Sale on a*reed upon profit)
$ai-0urabaha may be defined as a contract between a $uyer and a #eller under which the
#eller sells certain specific goods :permissible under Islamic #hari(ah and the %aw of the
%and; to the $uyer at a cost plus agreed profit payable in cash or on any fi.ed future date in
lump sum or by installments.
II) #ai1Mua22al 3Sale on 0eferre0 pa()ent basis4
$ai-0ua,,al may be defined as a contract between a buyer and a seller under which the seller
sells certain specific goods :permissible under Islamic #hari(ah and the law of the land;' to
the buyer at an agreed fi.ed price payable at a certain fi.ed future date in lump-sum or within
a fi.ed period by fi.ed installments. &he seller may also sell the goods purchased by him as
per order and specification of the buyer.
III4 #ai1Sala) 3'urchase of Goo0s on 0eferre0 0eli,er( basis4/
$ai-salam is a contract between a buyer and a seller under which the seller sells in advance
the certain commodity :ties;<product:s; :permissible under Islamic #hari(ah and the %aw of
the land; to the buyer at an agreed price payable on e.ecution of the said contract and the
commodity :ties;< products:s; is<are delivered as per specification' size' quality' quantity at a
future date and time in a particular place. In other word' $ai-#alam is a sale whereby the
Page | 40
-; $ai-0urabaha
$; $ai-0ua,,al
1; $ai-#alam
4; $ai-Istisa(a
e; $ai--sraf
-; 0udaraba
$; 0usharaka
-; 2ire 7urchase
Under shirkatul 0elk
$ai- 0echanism #hare 0echanism I,ara 0echanism
seller undertakes to supply some specific commodity :ies; product:s; to the buyer at a future
time in e.change of an advance price fully paid on the spot.
"54 #ai1 "stisna6a/
Istisna1a is a sale contract by which al%sani1 :the seller; on the basis of the order placed by
al%mustasni1 :the buyer; after having manufactured or otherwise acquired al%masnoo1 :the
goods; as per specification and sells the same to al%mustasni1 for an agreed upon price and
method of settlement whether that be in advance' by installments or deferred to a specific
time. It is a condition of Istisna1a contract that the seller should provide either the raw
material or the labour.
54 #ai1Assarf/ 7elate0 with foreign currenc( bu(ing an0 selling.
Under this mode the bank engaged with buying and selling of foreign currency.
5&4 Mu0araba
It is a form of partnership in profit where one party provides the funds while the other
provides e.pertise and management. &he "irst party is called the #ahib-al-0aal and the later
is referred to as the 0udarib. -ny profit accrued is shared between two parties on a pre-
agreed ratio' while capital loss is e.clusively borne by the supplier of the capital e.cept the
loss it is due to the breach of trust by the 0udarib.
5&"4 Mushara*a
0usharaka is a contract of partnership between two or more individuals or bodies in which
all partners contribute capital' participate in the management' share the profit as per pre
agreed ratio and bear the loss' if any' in proportion to their capital<equity ratio.
5""&4 8ps) 38ire 'urchase 9n0er Shir*atul Mel*4
2ire purchase under #hirkatul 0elk is a special type of contract which has been developed
through practice. -ctually' it is a synthesis of three contracts8 #hirkat' I,ara and #ale. #hirkat
means partnership. #hirkatul 0elk means share in ownership. /hen two or more persons
supply equity' purchase an asset' own the same ,ointly' and share the benefit as per
agreement' the contract is called #hirkatul 0elk contract.
-long with these modes there is another important mode of investment of "#I$% which is
- virtuous loan. - loan with the stipulation to return the principal sum in the future without
any increase.
S#pecially the 0odes applicable to 64#
Page | 41
:elfare Oriente0 Special "n,est)ent Sche)es
=. 2ousehold 4urables #cheme
F. 2ousing Investment #cheme
3. 6eal Estate Investment #cheme
?. &ransport Investment #cheme
*. 1ar Investment #cheme
H. Investment #cheme for 4octors
+. #mall $usiness Investment #cheme
D. -griculture Implements Investment #cheme
>. 6ural 4evelopment #cheme
=. 0icro Industries Investment #cheme
==. /omen Entrepreneurs Investment #cheme
=F. 0irpur #ilk /eavers Investment #cheme
=3. Equity and Entrepreneurship "und of $angladesh $ank
Chart 4.3
!*#((, !*,
*!#"), *!,
*#'(, (,
!#'), ',
$#$+, $,
"#+!, $,
"#"%, ",
Coposition of ode#ise Investent in
(ai 1urabaha
(ai 1uajjal
!urchase and Ne*otiation
Corje Basna
(ai Sala
Page | 42
Chart 4.4
!*#!*, !(,
%)#!$, %+,
!#'!, ',
!#"', !,
%#%&, %,
*#(, (,
Sectors of Investent in 91.12.2712
Real -state
5rend of Investent over the years:

4ear &**+ &**, &*'* &*'' &*'&
>3H?? ==3*+* =??>F= =D*? F=?H=H
Page | 43
In Million
(etails of Special Investment Schemes under Investment .ode
!oreign .change Operations
Page | 44
Came of
Eligibility 0a.imum
7eriod of
0ode of
3ovt.' semi govt'
autonomous official'
teachers' doctors'
engineers etc.
* F*G F years $ai-0uazzal
3ovt.' semi govt'
autonomous official'
universities teachers'
doctors' engineers etc.
of 1ity 1orporations
3 *G<
=* years 27#0
autonomous official'
universities teachers'
doctors' engineers'
business man' etc.
F 3G 3 years 27#0
1ar Investment
autonomous official'
universities teachers'
doctors' engineers'
business man' etc.
3* 3G ? years 27#0
Investment for
Cew' e.perienced'
specialized doctors
= F-3G * years 27#0' $ai-
#mall $usiness "ishery' livestock'
= -FG =-F years 27#0' $ai-
"armer' half educated
rural youth
F FG F years
4iploma' skilled 5
semi skilled youth
F Cil * years 27#0' $ai-
6eal Estate
"or all Iind of land
owners under 1ity
1orporation 5
important business
*G of cost
*G =-=*
"#I$% is playing a very important role in foreign e.change business of the country. Islami
$ank offers different trade products and services complying #hari(ah and law of the land.
&he foreign e.change operations can be categorized in following four areas8

1. Import #ervices and Import "inance
2. E.port #ervices and E.port "inance
3. "oreign 6emittance #ervices
4. "oreign E.change &reasury operations
!rinciples of +orei*n -=chan*e Operations:
Service !rinciples Scope of applications (asis
etter of -redit
Safe keeping
-ommission basis
etter of -redit
7erformance Bond
Bid Bond
Advance payment
-ommission basis
+inancin* !rinciples Scope of applications (asis
.urabaha Import
.urabaha Import Bills
.urabaha post Import Bills
.ark up basis
Sharing basis
3ire purchase under Shirkatul
/ental basis
Shari6ah aspects !oreign .change Operations
Page | 45
Islami $ank follows the following shari(ah aspects at the time of "oreign E.change
?a)alah: "*ency service
/akalah means entrusting someone to act as agent on behalf of principal.
-gency is one of the most important elements of Islamic partnership.
-gent gets fees<commission for e.tending desired services from the principle.
;ifalah/ Suret( ship
Iifalah means an obligation that someone wants to assume in addition to its e.isting
obligation in respect of a demand for something.
Iifalah may relate to a person' finance or an act.
"inance kifalah means an obligation to be met in the event of the principal debtorLs
inability to honor his obligation.
#ai/ #u( an0 sell
$ai is defined to mean simultaneously Lpurchase and sale(. i.e. the e.change of a thing
of value by another thing of value.
&he sub,ect of sale must be e.isting at the time of sale.
&he sub,ect of sale must be in the ownership of the seller at the time of sale.
Shir*at/ 'artnership
#hirkat means partnership for undertaking any lawful business.
&here are two broad categories of partnership include8
- 0udaraba
- 0usharaka
"2arah/ $easing
Page | 46
It is an arrangement to lease equipments' buildings or other facilities to a client against an
agreed rental .&here are two broad categories of of I,arah8
- I,arah 0untahia bit &amlik :2irepurchase;
- I,arah wa liqtina :%easing;
!rend of 9xport and Import and /emittance over the years#
9xport and Import and /emittance
!able%). :

Pear &**+ &**, &*'* &*'' &*'&
Import +?*F* >HD+ =3+DH =HD3F> =H=F3
E.port 3H=H> *==33 HHH> >3>HF =H?F?
6emittance 3H>?D *3D=> D?=?3 =??? =>?+=H
?elfare "ctivities of +SI(&
/elfare is a condition of having good health' comfortable living and pleasant working
conditions :2ornby;. 2ence' it can be said that welfare services are those which ensure
conditions of having good health' comfortable living and working conditions' which are
generally one(s basic needs. Islam views work as the primary means of earning and acquiring
income and wealth. $ut if real income is not sufficient to purchase necessities of life' then
welfare services become essential in a society to maintain the minimum standard of living of
the people. In fact' in every society' there are many people who lack the necessary income
and' consequently' face inadequate lifestyles due to unemployment and under-employment.
&heir condition cannot improve if welfare services remain absent and concentration wealth
remains in certain segments of society. &he Auran states the principle that Mwealth should not
circulate only among the richN T*>8+U.
Page | 47
In Million
&he Auran also encourages people to contribute generously to social welfare and helping the
needy in society. &hus the Auran establishes the general principle of generous welfare
spending while encouraging sacrificial levels of spending perhaps for social crises and for
conditions demanding high financial support. &hus Islam calls for the meeting of the basic
needs of the poverty groups through welfare services' which might include J
Care for others:
#iddiqi :=>>*' pp.F-3; mentioned that care for others' or helping behavior' is another cardinal
principle of Islamic economic behavior. It tempers the self-interest that is ingrained in human
nature to ensure survival. It is a natural concomitant of trusteeship' since one serves the
0aster by caring for 2is people. &he 7rophet' peace is upon him' said8 M0ankind is 3od(s
dependants' so the most beloved of people in the #ight of -llah are those who do good to 2is
2elping behavior is required because of the interdependent nature of manhood life. &here is
no fulfillment in life without interaction with others9 individual facility requires socialization.
&he e.clusive pursuit of self-interest in social relations is counter-productive9 it defeats its
own purpose. 0en serve their individual and collective interest best when each individual
cares for the welfare of others while striving to protect and promote his own interest. &his is
what religion teaches. &hose who deny it' deny religion.
Vakat is one of the five pillars of Islam. In a broad sense' it is only for social welfare purposes
as specified by the Auran8 M&he Vakat is :meant; only for the poor and the needy' those who
collect the ta.' those whose hearts are to be won over' for the freeing of human beings from
bondage' for the relief of those overwhelmed by debts' for the cause of 3od :all priority
social needs;' and for the wayfarer8 :this is; an ordinance from 3od and 3od is all-knowing'
Eard Basan 6benevolent loan)
Page | 48
#ince interest on all kinds of loan is prohibited in Islam' a loan' which is to be given in
accordance with the Islamic principle' has to be' by definition' a benevolent loan :Aard
2asan;' i.e. a loan without interest. It has to be granted on the grounds of compassion9 to
remove the financial distresses caused by the absence of sufficient money in the face of dire
need. #ince banks are profit-oriented organizations' it would seem that there is not much
scope for the application of this technique. 2owever Islamic banks also play a socially useful
role. 2ence' they make provisions to provide Aard 2asan besides engaging in income
generating activities. 2owever practices differ in this respect. #ome banks provide the
privilege of interest free loans to the holders of investment accounts at the bank. #ome other
banks have the provision to provide interest free loans to needy students and other
economically weaker sections of the society. Pet' some other banks provide interest free
loans to small producers' farmers' entrepreneurs who are not qualified to get financing from
other sources. &he purpose of these interest-free loans is to assist them in becoming
financially independent or to assist in raising their incomes and standard of living.
1obili:ation of Ga)ah
- pioneering e.periment putting the principles of Islamic banking into practice was
conducted in 0it-3hamr in Egypt from =>H3 to =>H+' in which three types of accounts were
operated. - Vakah account was one of them. &he Vakah account attracted the stipulated
amount of Vakah for redistribution amongst the poor :-usaf -hmed' op cit' p.F=;. #ince
Islamic banks follow the rules of &he Islamic #hari(ah' they have to pay Vakah on their own
resources :capital assets etc.;' which paved the way for mobilization of financial resources for
the needy and poor. M-n Islamic bank accumulates its Vakah in the Vakah fund and
distributes amongst the poor as per Islamic #hari(ahN.
Rotatin* Savin*s and Credit "ssociations:
&his credit program is intended to alleviate poverty. Under this program a small number of
individuals' typically si. to forty' form a group and select a leader who periodically collects a
given amount :a share; from each member. &he money collected :the fund; is then given in
rotation to each member of the group. &he leader receives no special consideration :other
than possibly getting the first fund;. 2e may also get commission' who in return may assume
liability for defaults. %oans are interest-free.
&his program helps to generate economic activities among the poor in the non-corporate
sector. It deals with informal finance and credit packages that improves the situation of
Page | 49
poorer families and creates local income opportunities for the people. It also discourages
internal migration. -t a grass root village and local level it is directed towards landless
laborers' marginal farmers' fishermen' small artisans' :e.g. blacksmith' carpenter' potter and
handicraft producer;' urban unemployed' small traders' rural industries' and small to medium
scale business enterprises.
-po#erent and Buani:in* +aily Credit !ro*ra:
Under this program' the bank is operating with a human face. "or e.ample' it offers financing
of consumer durable assets for the newly married couple provided marriage is dowry free.
-nvironental +riendly (usiness !ro*ra:
&his credit program is directed towards small traders of &okai :mainly street children of
distressed parents; with a recovery rate of =G
Social +und:
Every I$ has already established its social fund by mobilizing voluntary social saving' linked
to its all "ormal' Con-formal and Koluntary #ector $anking operations. I$ has been able to
mobilize a surplus #ocial "und for social investment purposes in the family empowerment
action program' social education fellowship program' and in the health and social services
Cash ?a.f Certificate:
I$ has already introduced the 1ash /aqf 1ertificate #cheme intended to empower the family
heritage of the rich and to benefit society as a whole. It could' be the most effective and
perpetual mode of deposit mobilization and use of its profit for perpetual social investment
and benefits is virtually unlimited. - waquif can choose the purpose :s; to be served by his
investment from the list of some purposes identified by I$9 which are related with "amily
6ehabilitation' Education and 1ulture' 2ealth and #anitation' #ocial Utility #ervice' or any
other purpose:s; approved by Islamic #hari(ah.
-hapter Five
Page | 50
<ifference between Con,entional - "sla)ic ban*ing
)ne must refrain from making a direct comparison between Islamic banking and
1onventional banking :apple to apple comparison;. &his is because they are e.tremely
different in many ways. &he key difference is that Islamic $anking is based on #hari(ah
foundation. &hus all dealing' transaction' business approach' product feature' investment
focus' responsibility are derived from the #hari(ah law' which lead to the significant
difference in many part of the operations with as of the conventional.
$y the way of the definition an Islamic bank 5 1onventional bank can be distinguished8
MIslamic $ank is a financial institution whose statutes' rules and procedures e.pressly
state its commitment to the principles of Islamic #hari(ah and to the banning of the
receipt and payment of interest on any of its operationsN.- )I1
M- commercial :conventional; bank is dealer in capital or more properly a dealer in
money. It is an intermediate party between the borrower and the lender. It borrows
from one party and lends to another and the difference between the terms at which it
borrows and those at which it lends from the source of its profitN.- 7rof. 3ilbert
Conventional (an)
&. $oan
Page | 51
$. !rinciple Investent
9. Aood 2. Cash
Islaic (an)
4. Cost plus agree0 profit
9. Aoods
2. Aood 1. Cash !ayent
&he foundation of Islamic bank is based on the Islamic faith and must stay within the limits
of Islamic law or the #hari(ah in all of its actions and deeds. &he meaning of #hari(ah is the
way to the source of life and is now used to refer to legal system in keeping with the code of
behavior called for by the 2olly Aur(an.
)n the other hand' the conventional bank is based on man made principles. &here many
fundamental and functional differences e.ist in these principles. -s a result various conflicts
arise within the internal and e.ternal management systems. &hese principles vary man to
man' place to place. -s a result it increases comple.ity in the conventional banking systems.
1aintenance of CRRDS&R:
-ll Islamic $anking 1ompanies shall maintain 1ash 6eserve 6atio :166; and
#tatutory %iquidity 6atio :#%6; as per rates prescribed by $angladesh $ank from time to
time. Every commercial $ank having Islamic bank branches shall maintain #%6<166 for its
Islamic branches at the same rate as prescribed for the Islamic banks and shall' for the
purpose' maintain a separate 1urrent -ccount for the Islamic branches with $angladesh
$ank. "or Islamic banks' #%6 is =.*G' 166 is ?.*G 5 %66 is *G. $ut 1onventional banks
#%6 is =D.*G' 166 is *.*G 5 %66 is =3G.
!roject appraisal and evaluation:
Islamic banks share profit and loss of any pro,ect financed. #o the banks pay greater attention
to developing pro,ect appraisal and evaluations. It gives more emphasis on the viability of the
pro,ect. -s the bank(s interest is linked with the earnings capability of the enterprise' it has to
,udge the worthiness or suitability of the pro,ect by applying suitable appraisal criteria. -ny
failure on the part of the bank to assess the soundness of the pro,ect would seriously affect
the profitability of the enterprise.
$ut in the conventional banking system' the bank is simply a financier and is not directly
concerned about the success or failure of the pro,ect for which loan was made' as long as it
receives its payments. &his is so because the banks income :interest income; does not
Page | 52
fluctuate with the fluctuations in the profit generated from the specific pro,ects. #ince return
from loan is fi.ed' it gives little importance to pro,ect appraisal and evaluations.
(asis for collection of deposit
Islamic banks collect the deposits on the basis of profit sharing. &he main function of Islamic
banks is to mobilize savings and provide financial support to the entrepreneurs. %ike the
conventional banks' the Islamic banks neither pay nor receive interest from any of its
transactions thereby saving everybody from the course of interest. It disapproves hoarding of
savings and encourages its productive investment. It mobilizes savings of the common people
in line with Islamic #hari(ah.
In the conventional banking system' the collection of the deposit is on the basis of interest.
2ere depositors receive interest in a predetermined rate of their deposits. Investors are to pay
a predetermined rate of interest to the bank. &he techniques' thus' involves each and every
partner in the transaction process with the element of interest.
1oral ,iension
In the Islamic banking system all economic agents have to work within moral value system of
Islam. &hey can not finance any pro,ect which conflicts with the moral value system of Islam.
&hey will not finance a wine factory' a casino' a night club or any other activity which is
prohibited by Islam or is known to be harmful for the society.
$ut the conventional banking is secular in its orientation. It has no restriction to finance any
pro,ect like Islamic banking systems. It emphasizes on the possibility of earning ma.imum
profit. It does not follow any religious rules and regulations or does not obey any restriction.
-phasis on !roductivity as copared to credit #orthiness
Islamic banks give greater emphasis on the viability and soundness of the pro,ect and the
business acumen and managerial competence of the entrepreneur. Under profit loss sharing
banking' the Islamic banks will receive a return only if the pro,ect succeeds and produces a
profit. Islamic banks have very careful attitude towards evaluation of applications for equity
oriented financing. #ince Islamic banks have a built in mechanism of risk sharing' it would
need to be more careful in how it evaluates financing requests. It adds a healthy dimension in
the whole lending business and eliminates a whole range of undesirable lending practices.
)n the other hand' conventional banks give greater emphasis on credit worthiness of the
clients. It is customary that conventional banks evaluate applications' consider collateral and
avoid risk as much as possible. &heir main concern does not go beyond ensuring the security
of their principal and interest receipts.
Scope of the activities:
-n Islamic $ank has wider scope of activities compared to a conventional bank. -
substantial distinguishing feature is that Islamic banks are universal or multipurpose banks
and not purely commercial banks. &hese banks are conceived to be a crossbreed of
commercial and investment banks' investment trust and investment management institution
and would offer a variety of service to their customers. - substantial part of their financing
would be for specific pro,ects or ventures. &heir equity oriented investment would not permit
them to borrow short term fund and lend to long term investment. &his should make them
less crisis prone compared to their capitalist counterparts' since they would have to make a
greater effort to match the maturity of their liabilities with the maturity of their assets.
Page | 53
1ompared to the Islamic banks' conventional banks have narrower scope of activities. &he
main function are collecting the deposits and ending to the borrower in different purposes in
e.change of rate of interest.
Auarantee for deposit:
&here is no guarantee for deposit money in the Islamic bank system. /ithout taking risk
financial transactions are not allowed in Islam. Under Islamic framework' depositors are
taking risk as #ahib-al-0al. &herefore the earning of the depositors is uncertain. -s Islamic
banks works on the basis of profit loss sharing system' depositors or #ahib-al-0al have to
bear the loss if any. )n the other hand conventional banks have to guarantee all its deposits.
/ithout considering the trend of income these banks have to give interest on the deposits
money at predetermined rate. &hey do not share any profit or loss with their clients. &hey
only maintain a debtor-creditor relationship with their clients<depositors.
,istributive justice and econoic stability:
#ince profits are shared between the entrepreneurs' the bank and depositors in the Islamic
banking system' there is no bias towards any income sector. In fact' the banks welcome
profitable business ventures form all income sectors. Islamic banks share a proportion of the
profits accrued from a pro,ect implying an equitable distribution. &he distributors remain
unaltered since the Islamic banks receive a share of total profits accrued from different
pro,ects financed by the bank. $ut the conventional banking maintains a flat rate of interest
regardless of the profitability of the pro,ects financed by it. &his system of fi.ed interest rate
is somewhat biased against the borrower rate is determined in a way that assures profits to the
other parties in the transaction. &his limits investment opportunity utilization capacity of the
conventional bank thereby reducing productive efficiency of conventional banking.
"llocate -fficiency:
&he income distribution scheme under conventional banking works against the goal of
optimum allocation of scarce financial resources. &his is because of the fact that conventional
banking' instead of financing in terms profitability of pro,ects' diverts funds to pro,ects with
sound collateral. &hese results in loans being made to higher income borrower that can be
meet the collateral requirements. $ut in Islamic banking' the productivity of the pro,ects is
more important. In this way' the resources instead of going to low to higher return pro,ects
even if the creditability of the borrower is lower. &herefore' this system is more efficient in
allocation of resources. #ince' they are specialized in the area of finance and investment9 their
e.pertise will be improving the profitability of the pro,ect as well as contribute in the
management of that pro,ect.
Stability of ban)in* syste:
&he Islamic banking model is more stable than the conventional banking model. In an
interest based system' there is lack of symmetry in the cash flow of the banks and the cash
flow of the enterprise. &he entrepreneurs of the businessman have to give a fi.ed interest to
the banks that has no relationship to the actual return of the pro,ect. &his creates instability in
the entire business sector. &he bankers also lack equilibrium in their assets and liability side
because their assets are fi.ed while liabilities are variable.
In case of Islamic banking system' the liabilities of the bank are on the basis of mudarabah
and hence are also variable. If there is any stock' it affects equally both asset and liability side
of the bankerBs balance sheet. &hus their liabilities are related with actual performance of the
pro,ects hey financed. &he asset and liabilities are mutually linked and this mechanism
Page | 54
returns equilibrium between the assets and the liabilities of the Islamic banks. #o there is a
very likelihood of bank failures.
Aro#th of the ban)in* syste:
"rom growth point of view the Islamic banking system is better than the conventional
banking system. Islamic banking model promotes innovation. In Islamic banking small and
medium entrepreneur has a better pro,ect he has a possibility of getting itBs financed. #ince
risk is shared between the financer and entrepreneur. It results in a better distribution of risk.
&herefore ingenious efficient entrepreneurs will be forthcoming and innovation will be
promoted. 0oreover conditions of the cost of capital are more favorable under the Islamic
system. 2ere the cost of capital varies with productivity. It does not have any deterrent effect
on investment which a fi.ed cost of capital has.
-phasis on the character of the loan applicant:
/hen money is deposited with an Islamic bank' the bank in turn makes investment in
different forms approved by the Islamic #hari(ah. /hen a client make an offer or a proposal
regarding loan or investment the bank emphasizes more on the character of the applicants.
&he bank must verify the character of the applicant before allowing his application. &he
banks deal with their client based on faith and trust. #o it is necessary for the bankers to know
the background' family status' educational qualification' business e.perience' reputation of
the applicant. -gain the bank may meet with the prospective client regarding his investment
needs and business e.perience prior to an application<proposal is submitted. &he bank may
review the clientBs past performance and other financing arrangement he may have had with
the bank in the past. /hen the banks become contain that the applicant is not involved with
any activities violating the Islamic #hari(ah they grant his proposal.
)n the other hand' conventional bank emphasizes on the financial strength' collateral
security' and creditworthiness of an applicant more than his character. /ithout considering
the character the bank will grant that proposal which will certainly give a ma.imum profit at
a predetermined fi.ed rate.
Islamic banks perform mostly the same functions as the conventional banks but they do it in
distinctly different manners. &hese differences make the Islamic banking system distinct from
the conventional banking system. It may be mentioned that if the Islamic banking system' is
to become truly liquid and efficient it must develop more standardized and universally
tradable financial instrument. Islamic banks can provide more efficient banking services if
they are supported with appropriate banking laws' regulations and guidelines. It would be
better if Islamic banks had the opportunity to work as a sole system in an economy. &hat
would provide Islamic banking system to fully utilize its potentials. &hus it can be free from
all difficulties and problems that are in the conventional banking system. It can be hopefully
e.pected that if the overall economic system as well as the banking system can be e.ecuted
according to Auran' #unnah and 2adit it will bring the ma.imum prosper in the entire
Chapter Si=
Page | 55
+indin*sH RecoendationsH ConclusionH
(iblio*raphy F "ppendi=
;.' +indin*s
"rom the above analysis we found that the overall functions and performance of "#I$% over
the years are quite satisfactory. &hough the no of branches in not enough for this
overpopulated country' the "#I$% is performing well. &hough it(s a profitable bank' it has
some lacking which are constrains for its operations.
,evisin* an interest<free echanis:
&hey have not yet been successful in devising an interest-free mechanism to place
their funds on a short-term basis. &hey face the same problem in financing consumer
loans and government deficits.
Ris) of profit<sharin*:
&he risk involved in profit-sharing seems to be so high that almost all of the Islamic
banks in $angladesh have resorted to those techniques of financing which bring them
a fi.ed assured return. -s a result' there is a lot of genuine criticism that these banks
have not abolished interest but' they have' in fact' only changed the nomenclature of
their transactions.
Inade.uacy of le*al support of the Central ban):

&he Islamic banks do not have the legal support of the 1entral bank in $angladesh' do
not have the necessary e.pertise and trained manpower to appraise' monitor' evaluate
an audit the pro,ects that are required to finance. -s a result' they can not e.pand
despite huge e.cess financial liquidity.
&ac) of ris)<hed*in* instruents:
Page | 56
&he prohibition against Mriba and some MfiqhN issues in the interpretation of
Mgharar mean that many risk-hedging instruments based on traditional tools' such as
option' futures and forwards are not available to Islamic banks in the current state of
Islamic banking.
4nderdeveloped oney ar)et and *overnent securities based on
profit<loss sharin*:
&his may difficult to manage the liquidity in terms of mismatching the asst-liquidity
and increases the liquidity shocks. "ortunately' significant progress has been made in
Iran for government securities and short-term instruments such as Cational
7articipation 1ertificates and 1entral $ank Mushrakah for such issues.
Re.uireent of holdin* a lar*e proportion of the assets in reserve
Islamic banks have historically been forced to hold a large proportion of their assets in
reserve accounts in central banks or in correspondent accounts than conventional
banks. &his has significantly affected their profitability because 1entral $ank gives
minimum or no return to these reserves. &his in turn' has affected their
competitiveness ad increases their potentiality to the e.ternal shocks with its
Operational ris)s:
)perational risks may arise from various sources9
&he unique activities that Islamic banks must perform.
&he non-standardized nature of some Islamic products.
&he lack of an efficient and reliable Shariah legislation system to
enforce financial contracts.
Ris)s involved #ith ISa&a'()
Page | 57
Salam :purchase with deferred delivery; contracts e.pose Islamic banks to both credit
and commodity price risk. &his is because banks agree to buy the commodity on a
future date against current payment and also hold the commodity until it can be
converted to a cash.
Ris)s involved #ith I*+ara$3:
Ijarah also contain the credit and commodity price risk because this contract do not
provide Islamic banks with the ability to transfer substantial risks and rewards to the
lessee as leased assets must be carried on the balance sheet of banks for the term of
the issue.
;.& /ecommendations
Page | 58
-fter observing the operation procedure of "#I$%' we recommend the following8
"#I$% should launch new financial products to attract customers as 1onsumer 1redit
#cheme' 1hild Education #cheme' and 7lastic 0oney etc. "#I$% can also lunch -&0 as
.arketing (ivision#
&o increase the faith of people' "#I$% should convince them in the best manner' so that
market share can be captured. 0arketing division should concentrate more on investment
(iversify Assets 7ortfolio#
%eading portfolio of "#I$% should be diversified. It should not concentrate or give weight
only in working capital financing.
I! Facilities#
I& facilities of "#I$% are not satisfactory enough. 1omputer system which owned by branch
are not up to date' not sufficient and moreover some of computer system not work properly
when they are needed. &here is no sufficient and high bandwidth Internet connection
available in the bank. #o' "#I$% should develop Information &echnology to ensure better
service for the customer and support communication with outside
<pgrading $ebsite#
"irst #ecurity Islami $ank $angladesh %td. should upgrade its website regularly and provide
details information of 1onsumer 1redit #cheme.
/eal "udgment before sanctioning the loans#
/hen a loan is issued for the customer' he should ,ustify by the IP1 policy. It is a sensitive
issue for the investment division. #o the relevant officer must take the responsibilities to
recover the loan.
9nsure Sufficient .anpo$er#
&he number of human resources in documentation section is really insufficient to give
services to huge number of customers. #o' number of staff should be increased in the
=eed 7ersonnel having Business 6no$ledge#
0ost of the personnel have no business education. #o selection of employee from business
school can give proper solution.
Page | 59
(evelopment of 3uman /esources#
2uman resource is another sector for the branch to be developed urgently. 2uman resources'
in the branch' need to be equipped with adequate banking knowledge. 0a,ority of the human
resources must have basic knowledge regarding money' banking' finance and accounting.
/ithout proper knowledge in these sub,ects' efficiency cannot be optimized. $ank can
arrange training program on these sub,ects.
9nsure 7roper .aintenance of Files#
"#I$% gives personalized services. -ll the officers have to give concentration to the
customers' while maintaining the customer files. Every staff should try to reduce these
9nsure 7roper -ommunication System and .aintenance of .achineries#
#ometimes 1ommunication #ystem remains out of order. -ttention should be given on
proper maintenance of phone' computer' fa. machine and photocopier.
;.: -onclusion#
Page | 60
$anks play a very vital role in the economic development of the country. &he popularity of
banks is increasing day by day which leads to increase competition as well. 1urrently *+
$anks are operated in $angladesh. -ll the 1ommercial banks are offering almost the same
products and services. $ut the way they provide the services are different from each other. #o
people choose their bank according to their satisfaction and need. )n the other hand' $anks
innovate new products and services to attract their desired customer. "irst #ecurity Islami
$ank $angladesh %td. is one of the fast growing banks in $angladesh because of its rapid
customers( satisfaction. &he bank is committed to run all its activities as per Islamic #hari(ah.
"#I$% through its steady process and continued success has' by now' earned the reputation of
being one of the leading private sector banks of the country. "irst #ecurity Islami $ank
$angladesh %td. is also playing an important role in establishing Islamic Economics by
combing the economic values with social and moral values. $y following the novelty of
Islamic Economics the bank is trying to make a balance development between spiritual and
material life. #till now hear about 3= Islamic banking and financial institutions in about ?>
countries of -sia' -frica' Europe' -merica and countries like 7akistan' U.I.' U.#.-.'
3ermany' -rgentina' 4enmark' %u.embourg' #witzerland and India have been established.
&he banking system of 7akistan and Iran was totally remodeled on the basis of Islamic
#hari(ah services. "#I$% will be more effective in our economy by launching new financial
products to attract deposit as 1onsumer 1redit #cheme' 7ension #cheme' and 1hild
Education #cheme and contribute more to develop the living standard of middle class people.
'. Islamic Banking
Page | 61
- 3abibur /ahman
&. Annual /eports of First Security Islami Bank% &**+%&*':
:. http#>>$$$.fsiblbd.com
). 3andout provided by IB!/A
?. -ho$dhury, /. A !ext book on banker1s advances, (haka# Fair corporation.
;. -ho$dhury, 0mar, @&**:A BBank1s non performing loans% some lessions for
bank oan.C Dournal of institute of bankers, Bangladesh Eol%?*, =o%& (ec%&**:,
7p% '+:%',:.
F. 6han, (r. A /, Bank .anagement# A fund emphasis, (haka# /uby
+. 6han, (r .a"ibur /ahman, @',+,A BAgricultural credit in Bangladesh# some
issues and considerations in policy planning.C 6rishi Bank 7araikrama, Eol.%, &
'*, Dune% (ec.%',+,, pp%F*%+).
Page | 62
=. 4oes "#I$% facilitate fund transfer on behalf of clientsW
F. 4oes it charge high commission for this serviceW
3. 4oes "#I$% offers #0EW
?. /hich investment mechanism is widely usedW
*. /hich $ai 0ode is widely usedW
$ai-0urabaha &rust 6eceipt
H. 4o your branch have special section for 64#W
+. 4oes "#I$% invest for any industryW
D. 4o your branch provide any investment facility for women entrepreneursW
>. /hat is the valuation process of collataralled assetW
-ns. DG f market value
Page | 63
=. "or how many period:s; you provide investment facility
a; = year
b; F year
c; 3year
d; more than *years
==. 4oes "#I$% participate at call money marketW
=F. Is there any locker systemW
=3. 4oes the bank provide 0I16W
=?. 4oes "#I$% offer %<1W
=*. 4o you offer both local 5 foreign 44<7. ).W
=H. 4o you offer both local 5 foreign &.&.W
=+. 4oes the bank provide online servicesW
=D. /hat types of e.port section of investment do you provideW
$ack to $ack %<1
Page | 64
0aster %<1
7re shipment financing
7ost shipment financing
-ll of them
=>. 4oes it take long time for the bank for making payment to the customersW
F. 4oes the bank charge high commission for any serviceW
F=. 4o you think your customers are satisfied with all of your servicesW
#trongly agree
#trongly disagree
FF. 4o your customers fell comfortable with your percentage on profitW
#trongly agree
#trongly 4isagree
Page | 65