Академический Документы
Профессиональный Документы
Культура Документы
Chapter-1: Introduction
1.1 Introduction
Page | 2
1.3 Methodology
Page | 3
This is a secondary data based report. Information has been collected from various
secondary sources like journal articles, annual reports of different banks, books and
different websites. All the existing Islamic banks of Bangladesh are included in this
study. The first two objectives of the research are subject to be achieved through
the secondary data review and the qualitative discussion. Current Islamic banking
practices and the performances of different Islamic banks are measured and
analyzed from the financial statements of the banks and information from different
relevant websites. Statistical analysis tool SPSS and MS Excel had been used for
analysis and graphical presentations.
Page | 4
other scholars discovered same findings in their studies in Indonesia, Kuwait and
Malaysia (Kader 1993 & 1995; Osman et al, 2009; Othman and Owen, 2001 &
2002; Wakhid and Efrita, 2007). A study on a large number of respondents by
Dusuki and Abdullah (2006) discovered that Islamic bankers should not only rely
on promoting the Islamic factors but also the necessary service quality. The three
most important factors found in their study were competence, friendliness and
customer service quality. Hanif & Iqbal (2010) categorized Islamic modes of
financing objectively in two heads; Sharia compliant and Sharia based. Later,
Hanif (2011) discussed these terms used for modes of financing briefly. He
explained Sharia compliant products as the modes of financing where return of
financier is predetermined and fixed but within Sharia constraints. The tools which
are relatively harmonizing the operations of Islamic financial system with
conventional banking includes Murabaha (cost plus profit sale), Ijara (a rental
arrangement), Bai Salam (spot payment for future delivery), Bai Muajjal (sale on
deferred payment), Istasna (order to manufacture) and Diminishing Musharaka
(house financing) are all Sharia compliant products. Sharia based transactions
means the financing modes adopted by IFIs on profit and loss sharing basis
including Musharaka (partnership in capital) and Mudaraba (partnership of capital
and skill). Under Sharia based modes of financing returns of financier are not fixed
in advance rather it depends upon the outcome of the project. However loss is to be
shared according to capital contribution. Following the rule of substance over form
one can conclude that the major difference between conventional and Islamic
financing is Sharia based modes of financing.
Mahal & Rahman (2013) made a comparative analysis between conventional and
Islamic banks of Bangladesh. They discussed the distinctions of product or service
Page | 5
and the distinctions in terms of business efficiency between Islamic Banks and
Conventional Banks. Their key findings on the product or service differences are
about the principles of business, variation in goals, variations in deposit etc. The
conventional banks of Bangladesh deal with man-made principles or principles
provided by Bangladesh Bank. But Islamic banks follow Shariah based principles
under the supervision of BB. Conventional banks currently focusing on the CSR
activities but Islamic banks are focusing on the IT development though they also
consider the CSR issues. Conventional deposit schemes are like the fixed deposit,
savings or short notice deposit and current deposit. The Islamic banks offer
through Al-Wadeeah principle and Mudaraba principle. These researchers also
discussed the distinctions in terms of business efficiency. Profitability of
conventional banks depends on loans and investments both; whereas Islamic banks
depends on only investments sectors. Conventional banks have to maintain more
SLR (19%) than the Islamic banks (10.5%). Islamic banks do not collect deposits
through conventional methods rather on the basis of profit & loss sharing notion.
Page | 6
Page | 7
After the independence, banking industry in Bangladesh started its journey with 6
nationalized commercialized banks, 2 State owned specialized banks and 3 Foreign
Banks. In the 1980's banking industry achieved significant expansion with the
entrance of private banks. Now, banks in Bangladesh are primarily of two types:
Scheduled Banks: The banks which get license to operate under Bank Company
Act, 1991 (Amended in 2003) are termed as Scheduled Banks
Non-Scheduled Banks: The banks which are established for special and definite
objective and operate under the acts that are enacted for meeting up those
objectives, are termed as Non-Scheduled Banks. These banks cannot perform all
functions of scheduled banks.
There are 56 scheduled banks in Bangladesh who operate under full control and
supervision of Bangladesh Bank which is empowered to do so through Bangladesh
Bank Order, 1972 and Bank Company Act, 1991. Scheduled Banks are classified
into following types:
State Owned Commercial Banks (SOCBs): There are 5 SOCBs which are
fully or majorly owned by the Government of Bangladesh.
Specialized Banks (SDBs): 3 specialized banks are now operating which
were established for specific objectives like agricultural or industrial
development. These banks are also fully or majorly owned by the
Government of Bangladesh.
Private Commercial Banks (PCBs): There are 39 private commercial
banks which are majorly owned by the private entities. PCBs can be
categorized into two groups:
Page | 8
Karmashangosthan Bank,
Page | 9
P a g e | 10
Numbers of
Banks
15
23
T Branches
/
Windows
843
19
25
Total
887
P a g e | 11
Year of
incorporation
Name of Banks
1.
2.
3.
4.
5.
6.
7.
8.
(EXIM)
First Security Islami Bank Ltd. (FSIB)
Shahjalal Islami Bank Limited (SJIBL)
Union Bank Limited (UBL)
1983
1987
1995
1995
1999
1999
2001
2013
14%
86%
Islamic banks
List of
Islamic banks:
P a g e | 12
P a g e | 13
Peoples initiative
In the early twentieth century, after the formation of East Bengal and Assam
province, centering Dhaka as its capital, the socio-economic development of East
Bengal was in a new spur. At that time an initiative was taken to set up and manage
interest-free banks in different areas of Bangladesh including Jessore and Cox's
Bazar. But those initiatives could not get solid foundation on the backdrop of then
socio-economic and political circumstances. Although individual efforts and
organizational initiatives continued, however, introduction of Shariah-based
banking remained a dream for a long time.
Bangladesh
actively
participated
in
the
conference
and
P a g e | 14
P a g e | 15
In the light of the decision of Bangladesh Bank and for creation of suitable
manpower for Islamic Banking, a one-month long full-time residential course was
held on 6 October 1981 at Sonali Bank Staff College. A total of 37 officers from
Bangladesh Bank, all state-owned banks, BIBM and then-proposed 'Dhaka
International Islamic Bank Limited (now, the Islami Bank Bangladesh Limited)
took part in the course.
The then Principal of Sonali Bank Staff College M. Azizul Haq played a vital role
in the successful implementation of the course. The opening ceremony was
presided over by M. Khaled, the then Chairman and Managing Director of Pubali
Bank.While the training course was underway, M. Khaled was appointed second
deputy governor of Bangladesh Bank. He was the special guest at the closing
ceremony of the training program as the Deputy Governor of Bangladesh Bank.
Other Initiatives
From 1979 to 1982, a number of public and private institutions in the country took
part in the preparatory work for the establishment of Islamic banks. At the time, a
`Working Group for the Islamic banking in Bangladesh was constituted under the
leadership of M. Khaled. He also led the reorganizing process of the group and
subsequently it came to be known as Bangladesh Islamic Bankers Association
(BIBA).
At that time, several national and international seminars and training courses on
Islamic banking were organized by Bangladesh Institute of Bank Management
(BIBM), Islamic Economics Research Bureau, Baitus Sarf Islamic Research
Institute, Chittagong where, senior bankers, economists and professionals of the
country took part. In the meantime, more than 300 bank officials were trained.
P a g e | 16
P a g e | 17
P a g e | 18
There are different modes and mechanisms of investment under the Islamic
Shariaah which are mainly categorized are under:
1. Bai Mechanism
2. Sharing or Partnership Mechanism
3. Ijara Mechanism
Investment
Mechanism
BaiMechanism
Sharing
Mechanism
BaiMurabaha
BaiMuazzal
Bai-Salam
Bai-Istisna
Mudaraba
Musharak
a
Ijara
Mechanism
Hire
Purchase
Hire
Purchase
under
shirkatul
Melk
Islamic banks do not directly deal with money. They run business with money.
The funds of Islamic banks are mainly invested in the following modes:
1. Mudaraba
2. Musharaka
3. Bai-Murabaha
4. Bai- Muazzal
P a g e | 19
Musharaka: The word Musharaka stands for a partnership that shares both profit
and loss. Such joint venture way of financing is designed to limited production or
commercial activities of long duration. Under Musharaka, the bank and the
customer jointly contribute capital as well managerial expertise and other essential
P a g e | 20
services at agreed proportions. Profit or losses are shared according to the contract
agreed upon.
P a g e | 21
Ijarah: Ijara refers to leasing in Islamic finance. Leasing by Islamic banks is very
similar to the leasing of conventional banks. It is argued that: The leasing
agreement is based on profit sharing in which the bank buys the movable or
immovable property and leases it to one of its client for an agreed sum by
installments and for a limited period of time into a saving account held with the
same bank. These installments are invested in Mudaraba investment for the
customers account. The accumulated profit generated from the payments, and the
payments themselves are invested in the banks investment ventures over the time
period of lease, contributing to eventual purchase of the leased assets. The
difference of Islamic banking lease with the traditional lease is that under Islamic
banking leasing the risk related to leasing is shared between the lessee and lessor.
There are various modes of leasing under Islamic banking, discussion of which
does not fall under the specific purview of this report.
Hire Purchase under Shirkatul Meelk: Under this mode of financing, Islamic
banks share equity with the client in purchasing some assets. Both the bank and the
client share the ownership and the share of benefit and loss in operating the asset.
The portion of the asset owned by the bank is leased out to the client for use under
specific conditions (like rent) and then, the client buys the banks portion upon
agreed upon terms.
Qard: Qard refers to interest-free loan provided by Islamic banks to its clients.
According to various authors the main aim of this loan is to help needy people in a
society in order to, make them self-sufficient and to raise their income and
standards of living.
P a g e | 22
P a g e | 23
Under this mode there is no scope to increase the price once it is fixed.
After buying the goods the bank has to bear all the risk until goods are actually
delivered to the client.
b) Import under the Bai-Muazzal system
Under this mode of investment, a contract is made between the buyer and seller for
buying and selling of goods approved by Islamic Shariah and law of the land on
the stipulation to pay the agreed price at a specific future date or by fixed
installments.
P a g e | 24
P a g e | 25
Export business
a. Pre-shipment finance
i. Back to back letter of credit(back to back L/C)
Bank extends back to back L/C facilities to exporters to procure/import rawmaterials for producing/ manufacturing exportable goods at pre-shipment stage
under the mode of Bai-Muazzal. Initially, no financial facility from the bank is
required when the back to back L/C is opened. But if the exporter fails to pay the
L/C value at maturity or on due date, the bank provides financial facilities to the
client under Bai-Mazzal mode.
iii. Bai-Salam
Under the Bai-Salam mode of investment, payment is made in advance to purchase
the goods and the supplier makes promise to delivers the goods at a future date.
Investment under Bai-Salam mode is made to meet other expenses of the exporter
P a g e | 26
excepting the manufacturing cost of exportable goods. The bank purchase a portion
of goods under the Bai-Salam mode and makes advance payment for the same on
the condition that the arrangements will be made by the exporter to export the
goods purchased by the bank along with other goods of the exporter.
iv. Musharaka
Pre-shipment investment may be made under Musharaka mode of investment if
there is any pre-determined investment agreement.
b. Post-shipment finance
Bank provides post-shipment facilities through negotiation (FBN) and purchase of
export bills. It normally negotiates or purchases the export documents if the
documents/bills prepared by the exporter are found in order/correct in all respect.
The bank adjusts the liabilities against FBN/FBP after receiving the export
proceeds and earns exchange income from this. This mode of investment is in
compliance with the Islamic Shariah.
P a g e | 27
P a g e | 28
ICB
AAIBL
SIBL
EXIM
FSIB
SJIBL
UB
Total
Average
2009
431.52
1,682.99
326.84 1,070.57
5,712.25
2010
640.10
3,458.02
548.60 2,072.34
11,662.44 1,666.06
2011
1,032.46 2,017.72
579.94 1,168.65
9,620.08
2012
1,465.22 2,083.08
762.29 1,744.45
12,304.89 1,757.84
5,055.36
1252.13
776.48 1,305.92
2013
(680.75)
1524.34
1,885.61
87.34
1,374.30
11,206.43 1400.80
Here, we see that except the ICB, most of the Islamic banks shows remarkable
increase in their profitability. Islami Bank Bangladesh Limited, the first Islamic
bank of Bangladesh is leading in term of net profit since the last decade. On the
other hand, ICB Islami Bank Limited shows net loss in almost all the years of the
last ten years. This one is an exception. One reason behind this consistent negative
figure in profitability is the change of ownership. The other banks show more or
less gradual increase in their profitability or portray the upward trend in financial
performance. Union Bank Limited, which is the latest incorporation, hasnt
published any official financial statements yet.
816.04
P a g e | 29
1374
600
400
1757
1666
800
816
200
0
2009
2010
2011
2012
2013
P a g e | 30
Bangladesh is one of the emerging economies in South Asia. The Islamic banking
set out its glorious journey in this country three decades ago. Now, this banking
system covers one-fifth of the country's total banking. On the basis of asset value
(size of assets) Bangladesh holds 12th position in the global Islamic bank ranking.
P a g e | 31
Considering the financial inclusion or `the nature of distribution rather than `the
size of assets, the position of Islamic banking in Bangladesh is quite encouraging.
The average growth of deposit in the banking sector in last five years (2009-2013)
was 19% which was 20% for Islamic banks. During this period the average
investment growth of countrys banking sector was 18%, which was 20% for
Islamic banks. For the same period, the total assets in banking sector increased by
19%. In contrast, Islamic banks have achieved 21% growth. In the last five years,
mentioned above, the average growth of equities in Islamic banks was 24%, which
was 27% for the total banking sector of the country. A number of public banks
have increased their capital in 2013, which has contributed to raise the equity
index.
P a g e | 32
I. Deposits
Total deposit of the Islamic banks stood at Tk. 1,13,360 crore in December 2013,
which was 18.00% of total deposits of the country and 29% deposits of the private
commercial banks. Total deposits of the Islamic banks stood at Tk. 1,33,561 crore
in June 2014.
P a g e | 33
country's total customer deposits for all private commercial banks were 2 crore and
78 lakh, of them 42.12% was in the Islamic banks.
iii. Investment
Total investment of the Islamic banks was Tk. 97,530 crore on December 2013,
which was 21% of total investments in the country's banking sector and 30%
investment of the private commercial banks. Islamic banks investment stood at
Tk. 113,796 crore on June 2014.
P a g e | 34
v. Assets
P a g e | 35
On December 2013, the size of Islamic banks assets stood at Tk. 135,900 crore,
which was 17 % of countrys banking assets and 27.40% of the total assets of
private commercial banks. Total amount of assets of Islamic banks was Tk.
147,604 crore on June 2014.
Vi. Equity
By following the principles of capital adequacy rules set by the central bank,
Islamic banks share in total equity was in a satisfactory level in the past years.
Total equity of Islamic banks was Tk. 10,280 crore on December 2013. It is 15
percent equity of the country's banking sector and 23 percent equity share of
private commercial banks. Total equity of the countrys Islamic banks stood at Tk.
11,382 crore in June 2014.
P a g e | 36
vii. Remittance
viii. Import
The amount of total imports in Bangladesh, during January-June of 2014, was Tk.
167,014 crore. Islamic banks imported over Tk. 34,952 crore; which was 21% of
the total imports. The Islamic banks were at the forefront in importing various raw
materials and essential goods including fertilizers, cotton, rice, wheat, etc.
P a g e | 37
ix. Export
Total exports of the country, during January-June 2014 period, stood at Tk. 110,096
crore. The amount of Tk. 26,787 crore has been exported through the Islamic
banks, which was 4% of total national exports. Islamic banks have been playing a
leading role in drawing of foreign exchange through the export of various products
including ready-made garments.
P a g e | 38
Compared to 10 percent Capital Adequacy Ratio (CAR) set by the Central bank,
country's banking sector CAR was 11.50% in December 2013. At that time, capital
adequacy ratio of the Islamic banks was 12.16%.
Total asset-based average net profit (Return on Asset-ROA) for the Islamic banks
was Tk. 0.98 during 2012 and 2013. Total equity-based average net profit (Return
on Equity-ROE) was Tk. 13.05 and the amount was Tk. 14.11 for the overall
banking sector in the same period.
P a g e | 39
P a g e | 40
P a g e | 41
P a g e | 42
P a g e | 43
P a g e | 44
P a g e | 45
P a g e | 46
P a g e | 47
The task is more challenging for Islamic banks, as they have to promote their
distributional efficiency from all dimensions together with profitability, Islamic
banks, step by step, have to be converted into profit-loss-sharing banks by
increasing their percentage share of investment financing though PLS modes. The
Islamic banks, to do that, can be selective in choosing clients for financing under
PLS modes. They should establish direct functional relationship between the
income of the depositors and between the income the income of the bank and that
of the entrepreneurs. The relationship improves with share of bank financing under
PLS modes increases.
P a g e | 48
improvement and expansion of the range of dealing in the banking sector. Thus, it
is necessary for them to provide comprehensive banking and investment services to
clients and simultaneously to take advantage of modern technological
breakthroughs in areas such as electronic communication, computerization etc.
P a g e | 49
Chapter-8: Findings,
Recommendations& Conclusions
P a g e | 50
P a g e | 51
2. Need for proper policy measure: Even under the conventional banking
framework Islamic banks can operate with certain level of efficiency by applying
in a reasonable percentage the PLS modes. The distinguishing features of Islamic
banking. This has been possible in some countries of the Muslim world where the
management of Islamic banks was cautious about possible impacts of every policy
measure. Particularly, the management of these banks was judicious in selecting
sectors or areas as major of their operations. Sudan Islamic banks is a typical
example in this respect. Islamic banks in Bangladesh have much to learn from the
experience of this successful Islamic bank.
3. Need for separations: Having been considered the pro-efficiency character of
Islamic banking and its beneficial impacts on the economy, government policy in
Bangladesh should be in favor of transforming conventional banking system into
Islamic banking. It is reasonable to assume that risks involved in Mushraka or
Mudaraba financing are different from those involved in trade-type financing. It
follows, therefore, that prudential regulations of these transactions should be
different.
4. Need for separate standards and measures: Determination of profit and loss
in profit/loss sharing arrangement and treatment of costs and reserves in such
accounting is a pertinent issue to be addressed with utmost importance and priority.
However, Islamic banking is a very critical institution to materialize the economic
objectives of Islam. It should however, be noted that it is to the whole of the
Islamic framework. Compared to the conventional banks it is very much viable by
itself, but the full impact of it can only be realized by supplementing it with
corresponding reforms in other spheres of life in general, and in the monetary and
P a g e | 52
fiscal fields in particular. Finally, it may be mentioned that if the Islamic financial
system, is to become truly liquid and efficient it must develop more standardized
and universally (or at least widely) tradable financial instruments. The
development of a secondary financial market for Islamic financial products is
crucial if the industry is to achieve true comparison with the conventional system.
It must also work hard to develop more transparency in financial reporting and
accounting and ideally - a form of Islamic GAAP. Development if the whole sale
and especially inter-bank and money markets, will be the key to Islamic finance
growing outside its current little sphere of influence, and becoming a truly national
invigorating force.
P a g e | 53
Chapter-9: References
REFERENCES
1. Islamic Banking in Bangladesh: Progress and Potentials by Mohammad
Abdul Mannan, Managing Director of Islami Bank Bangladesh Limited.
2. Chapra, M. Umar (1000), Islam and Economic Challenge, Islamic
Foundation, UK.
P a g e | 54
3. Kahf, Monzer, (2002), Strategic Trends in the Islamic Banking and Finance
Movement, Harvard University, USA, articles read at a seminar of Harvard
Forum on Islamic Finance and Banking (April 6-7, 2002).
4. Nienhaus, Volker (2011), Islamic Finance Ethics and Shari'ah Law in the
crisis of the aftermath: Concept and Practice of Shari'ah Compliant Finance,
in ethical perspectives, volume 18, Issue No. 4.
5. Mannan, Mohammad Abdul (2007), Islamic banking system, Central
Shari'ah Board for Islamic Banks of Bangladesh.
6. World Islamic Banking Competitiveness Report 2013-14, Ernst & Young.
7. Journal of Islamic banking and Finance, March 2014, by Salahuddin Yousuf,
Md. Ariful Islam, Md. Rayhan Islam.
8. Islamic Banking in Bangladesh: Performances, Problems & Prospects, by
Abdul Awwal Sarkar.
9. Prospects of Islamic banking in Bangladesh by Md. Maruf Ullah and Md.
Shahnur Azad Chowdhury.
10.Development of Islamic Banking in Bangladesh, April-June 014, Research
Department, Bangladesh Bank.
11.Financial Stability Report 2013, Issue 4, June 2014, Bangladesh Bank.
12.Scheduled Bank Statistics, December 13 & March 14, Bangladesh Bank.