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As an Islamic Bank the statutes, rules and regulations of Islami Bank Bangladesh Ltd. expressly state its commitment to the principles of Islamic Shariah. All its activities are conducted on interest free system according to Islamic Shariah. So it extends its socio-economic and financial services to the poor helpless and low-income people for their economic upliftment in urban and rural areas. Islami Bank Bangladesh Ltd. is more concerned with the soundness of the project and the business acumen and managerial competence of the entrepreneur than credit worthiness of the borrower. An Islamic bank is a financial institution that operates with the objective to implement and materialize the economic and financial principles of Islam in the banking arena. 1.1 BACKGROUND OF THE STUDY: For an expanding economy, a developed and efficient banking system is indispensable. Among others, it helps transfer of financial resources from surplus units to deficit units and, hence, helps accelerate the pace of development by securing uninterrupted supply of financial resources to people engaged in numerous economic activities. The tremendous development that the world economy has experienced in the last few decades was contributed by several factors among which, growing institutional supply of loan able funds must have played the pivotal role. The role of banking is comparable to what an artery system does in the human body. Both commercial banks and other development financial institutions provide short-term, medium-term, and long-term credits to businessmen and entrepreneurs who usually take the lead in ventures of economic development. Institutional supply of credit has been made possible by a system of financial intermediation organized in a way where conventional banks collect small savings from the public by offering them a fixed rate of interest and advancing the loan able funds out of the deposited money to enterprising clients charging relatively higher rates of interest. 2

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

1.2 Objectives of the study:

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

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

1.3 Methodology of the Study:

The study is performed based on the information extracted from different sources collected by using a specific methodology. This report is analytical in nature. The methodology is Population: All the Branches of IBBL located in everywhere in Bangladesh has been taken into consideration as population. Sample: Islami Bank Bangladesh Ltd, Panthapath branch & Islami Bank Training and research centre. Data collection: Source of data of this report can be divided into two categories: Primary Sources: Interviewing officers and staffs. Face to Face conversation with the respective officers, staffs, clients. Practical desk work.

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

1.4 Limitation of the study

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

Chapter Two Overview of Islami Bank Bangladesh Limited

Historical Backgrounds of IBBL

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

Organizational Structure of IBBL:

ORGANIZATIONAL STRUCTURE OF IBBL:

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

Meaning of Islamic Banking:

Islamic banking has been defined in a number of ways. The definition of Islamic bank, as approved by the General Secretariat of the OIC, is stated in the following manner. An Islamic bank is a financial institution whose status, rules and procedures expressly state its commitment to the principle of Islamic Shariah and to the banning of the receipt and payment of interest on any of its operations(Ali & Sarkar 1995, pp.20-25). Shawki Ismail Shehta viewing the concept from the perspective of an Islamic economy and the prospective role to be played by an Islamic bank therein opines: It is, therefore, natural and, indeed, imperative for an Islamic bank to incorporate in its functions and practices commercial investment and social activities, as an institution designed to promote the civilized mission of an Islamic economy (Ibid). Ziauddin Ahmed says, Islamic banking is essentially a normative concept and could be defined as conduct of banking in consonance with the ethos of the value system of Islam (Ibid). It appears from the above definitions that Islamic banking is systems of financial intermediation that avoids receipt and payment of interest in its transactions and conducts its operations in a way that it helps achieve the objectives of an Islamic economy. Alternatively, this is a banking system whose operation is based on Islamic principles of transactions of which profit and loss sharing (PLS) is a major feature, ensuring justice and equity in the economy. That is why Islamic banks are often known as PLS-banks.

Mission
To establish Islamic banking through the introduction of a welfare oriented banking system and also ensure equity and justice in the field of all economic activities achieved balance growth and equitable development through diversified investment operations particularly in the priority sectors and less developed areas of the country. To encourage socio-economic

Vision
Our vision is to always strive to achieve superior financial performance, be considered a leading Islami Bank by reputation and performance. Our goal is to establish and maintain the modern banking techniques, to ensure the soundness and development of the financial system based on Islamic principle and to become the strong and efficient organization with highly motivated professionals working for the benefit of the people, based upon account ability transparency and integrity in order to ensure stability of financial systems. We will try to encourage savings in the form of direct investment. We will also try to encourage investment particularly in projects which are more likely to higher employee.

Objectives of Islamic Banking:

The primary objective of establishing Islamic banks all over the world is to promote, foster and develop the application of Islamic principles in the business sector.

The objectives of Islami Bank are:

To conduct interest-free banking. To establish participatory banking instead of banking on debtor-creditor relationship. To invest on profit and risk sharing basis. To accept deposits on Mudaraba & Al-Wadeah basis. To establish a welfare-oriented banking system. To extend co-operation to the poor, the helpless and the low-income group for their economic enlistment. To play a vital role in human development and employment generation.

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To contribute towards balanced growth and development of the country through investment operations particularly in the less developed areas. To contribute in achieving the ultimate goal of Islamic economic system

DISTINGUISHING FEATURES OF ISLAMIC BANKING:

An Islamic bank has several distinctive features as compared to its conventional counterpart. Chapra (1985, PP.154-57) has outlined six essential differences as below: ABOLITION OF INTEREST (RIBA): Since Riba is prohibited in the Quran and interest in all its forms is akin to Riba, as confirmed by Fuqaha and Muslim economists with rare exceptions, the first distinguishing feature of an Islamic bank must be that it is interest-free.

ADHERENCE TO PUBLIC INTEREST: Activity of commercial banks being primarily based on the use of public funds, public interest rather than individual or group interest will be served by Islamic commercial banks. The Islamic banks should use all deposits, which come from the public for serving public interest and realizing the relevant socio-economic goals of Islam. They should play a goal-oriented rather than merely a profit-maximizing role and should adjust themselves to the different needs of the Islamic economy. MULTI-PURPOSE BANK: Another substantial distinguishing feature is that Islamic banks will be universal or multipurpose banks and not purely commercial banks. These banks are conceived to be a crossbreed of commercial and investment banks, investment trusts and investment -management institutions, and would offer a variety of services to their customers. A substantial part of their financing would be for specific projects or ventures. Their equity-oriented investments would not permit them to borrow short-term funds and lend to long-term investments. 11

This 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. MORE CAREFUL EVALUATION OF INVESTMENT DEMAND: Another very important feature of an Islamic bank is its very careful attitude towards evaluation of applications for equity oriented financing. It is customary that conventional banks evaluate applications, consider collateral and avoid risk as much as possible. Their main concern does not go beyond ensuring the security of their principal and interest receipts. Since the Islamic bank has 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.

WORK AS CATALYST OF DEVELOPMENT: Profit-loss sharing being a distinctive characteristic of an Islamic bank fosters closer relations between banks and entrepreneurs. It helps develop financial expertise in nonfinancial firms and also enables the bank to assume the role of technical consultant and financial adviser, which acts as catalyst in the process of industrialization and development.

Conventional and Islamic Banking:

Conventional banking is essentially based on the debtor-creditor relationship between the depositors and the bank on the one hand, and between the borrowers and the bank on the other. Interest is considered to be the price of credit, reflecting the opportunity cost of money

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Islam, on the other hand, considers a loan to be given or taken, free of charge, to meet any contingency. Thus in Islamic Banking, the creditor should not take advantage of the borrower. Conventional Banks 1. The functions and operating modes of conventional banks are based on manmade principles. 2. The investor is assured of a predetermined rate of interest. 3. It aims at maximizing profit without any restriction. 4. It does not deal with Zakat. Islamic Banks 1. The functions and operating modes of Islamic banks are based on the principles of Islamic Shariah. 2. In contrast, it promotes risk sharing between provider of capital (investor) and the user of funds (entrepreneur). 3. It also aims at maximizing profit but subject to Shariah restrictions. 4. In the modern Islamic banking system, it has become one of the service-oriented functions of the Islamic banks to collect and distribute Zakat. 5. Lending money and getting it back with interest is the fundamental function of the conventional banks. 6. Its scope of activities is narrower when compared with an Islamic bank. 6. Its scope of activities is wider when compared with a conventional bank. It is, in effect, a multi-purpose institution. 7. It can charge additional money (compound rate of interest) in case of defaulters. 8. In it very often, banks own interest becomes prominent. It makes no effort to ensure growth with equity. 7. The Islamic banks have no provision to charge any extra money from the defaulters. 8. It gives due importance to the public interest. Its ultimate aim is to ensure growth with equity. 5. Participation in partnership business is the fundamental function of the Islamic banks.

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9. For interest-based commercial banks, borrowing from the money market is relatively easier. 10. Since income from the advances is fixed, it gives little importance to developing expertise in project appraisal and evaluations. 11. The conventional banks give greater emphasis on credit-worthiness of the clients.

9. For the Islamic banks, it is comparatively difficult to borrow money from the money market. 10. Since it shares profit and loss, the Islamic banks pay greater attention to developing project appraisal and evaluations. 11. The Islamic banks, on the other hand, give greater emphasis on the viability of the projects.

RIBA AND ITS

BASIC FEATURES

The word used by the Quran concerning interest is Riba. The literal meanings of Riba are money increase, increase of anything or increment of anything from its original amount (Maududi 1979, p.84). However, all increases are not considered as Riba in Islam. Money may increase in business activities as well. This increase is not at all considered as Riba. The increase, instead of being prohibited (Haram), is approved (Halal) in Islam. Islam prohibits only those increases that are charged on the loan with a prefixed rate. Muslim scholars equate interest with Riba. In the Shariah, Riba technically refers to the premium that must be paid by the borrower to the lender along with the principal amount as a condition for the loan or for an extension in its maturity (Chapra 1985, p.64). In other words, Riba is the predetermined return on the use of money. In the past there has been dispute about whether Riba refers to interest or usury, but there is now consensus among Muslim scholars that the term covers all forms of interest and not only excessive interest (Khan 1985, p.52). Its basic characteristics are:

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It must be related to loan; A prefixed amount of money to be paid when due; A time is fixed for the repayment; and All these elements for repayment are taken as conditions for loan. PROFIT :

RIBA

AND

There are persons who try to equate Riba with profit. In effect, they are fundamentally differences are:

RIBA

Profit

1. When money is charged, its imposed 1. When money is used in trading (for e.g.) its positive and define result is Riba uncertain result is profit. 2. By definition, Riba is the premium paid 2. By definition, profit is the difference by the borrower to the lender along with between the value of production and the cost principal amount as a condition for the of production. loan.

3. Riba is prefixed, and hence there is no 3. Profit is post-determined, and hence its uncertainty on the part of either the givers amount is not known until the activity is or the takers of loans. be very low or zero. Haram. done. negative. Halal. 4. Riba can not be negative, it can at best 4. Profit can be positive, zero or even 5. From Islamic Shariah point of view, it is 5. From Islamic Shariah point of view, it is

Corporate Information
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(As on December 31, 2010) Date of Incorporation Inauguration of 1st Branch (Local office, Dhaka) Formal Inauguration Share of Capital Local Shareholders Foreign Shareholders Authorized Capital Paid-up Capital Deposits Investment (including Investment in Shares) Foreign Exchange Business: Import Export Remittance Branches Total number of Branches Number of AD Branches Number of Shareholders Manpower

13th March 1983 30th March 1983 12th August 1983 41.77% 58.23% Tk. 20,000.00 million Tk. 7,413.10 million Tk. 291,347.00 million Tk. 292084.00 million Tk. 246,281.00 million Tk.148,421.00 million Tk. 214,629.00 million 251 43 52164 10,068

IslamiBankTower 40,DilkushaC/A,Dhaka-1000 Bangladesh GPO Box no: 233 Telephone: (02) 9563040(Auto Hunting), 9560099, 9567161, 9567162, 9569417 Fax: 880- 2- 9564532, 880 -2- 9568634 SWIFT: IBBLBDDH E-Mail: info@islamibankbd.com Web: http://www.islamibankbd.com

Products & Services of the bank

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IBBL has the scope to explore the market niche through various types of IBBL instruments.IBBL offers wide Range of IBBL products and services. It provides Mudaraba Savings Deposit, Mudaraba Term Deposit, Mudaraba Special Savings (pension), Al Waadeeah current account, Mudaraba Savings Bond, Mudarba Monthly Profit Deposits, Mudaraba Special Deposits, Mudaraba Hajj Savings, Mudaraba Muhor Savings, Mudaraba Foreign Currency Deposits, and Mudarba waqf cash Deposits.

SWOT ANALYSIS
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STRENGTH Wide branch network in the country Islamic sharia based network Good financial performance A group of hard, honest, industrious employee Well manner and adequate Strong market share Strong support of Muslim country Opening account is very easier than other conventional bank Less risky investment

Weakness
Lack of using modern technology Limited customer service Weak management system Lack of modern skill Employees dissatisfaction regarding salary Limited number of Islamic banking

Opportunity
People religious mentality to Islamic Shariah Easy transaction system Large number of customer On-line Banking Awareness of Islamic Banking

Threat
Market competition is very hard Worldwide economic recession 18

Export is less than import Lack of branches all over the world Lack of co-operation and co-ordination among the Islamic banks Fall of Share market.

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Chapter Three Different Activities Performed by Panthapath Branch

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3.1 Internship Duties and Position

We have done our internship program in Islami Bank Bangladesh Limited. at Panthapath Branch. It is one of the leading commercial private banks in our country. This Bank was established in 1983 based on Islamic Shariah .Their vision is strive to achieve superior financial Performance and be considered a leading Islamic Bank by reputation and performance .Especially we want to say about Panthapath Branch. This Branch is the one of the busiest Branches. Our internship Program duration was for total 60 days .It was designed by Islami Bank Training &Research Academy (IBTRA) First 15 days we have done theoretical class in IBTRA. Then we went to the Panthapath Branch For practical experience with 45 days. Where we have learned properly Islamic Banking and Financial system. After completion of theoretical part, we have gone to Panthapath Branch.

3.2 Panthapath Branch

We worked 45 days in this Branch. In this Branch there are 22 employees. This Branch is the busiest Branch. They are very pleased for us. All of them are very co operative with us. We were working under several sections which are explained below:

3.2.1 Account Opening section

One by one we worked 10 days in this section. This section is one of the busiest sections in this Branch. Because a new client can enter the banking system, to opening new account. Lot of customer arrive and try to collect information. opening requirements to their clients. Ansari , Morium and Ierin sir are working in this section. They help us to learn how to open a new account . There are some requirements and papers need to open a new account. Customers need two copies passport s ize photo, commissioner certificate, introducer sign and nominee photo for their account opening. . We provided information for account opening about the account opening requirements to their clients and help customer to open a new accoun

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. Procedure of Account Opening

3.2.a Account Opening (Normal Account):
Collect an Account opening form from the Bank Fill all the requirements of the form. Nominee is must be specified. Photograph is most important for any account. The account holder sign of his/ her own self in front or the specific bank principle officer in the account opening form

3.2.b Account Opening (Saving Account):

Collect an Account opening form from the Bank. Fill all the requirements of the form (Must be introduced by introducer) Nominee is must be specified. Photograph is most important for any account. The account holder sign of his/her own self in front or the specific bank principle officer in the account opening form. To open this account the most important things is that Passport Photocopy or the National ID Card Photocopy must have to add with the account opening form.

3.2.c Account Opening (Current Deposit Account): Collect an Account opening form from the Bank. Fill all the requirements of the form (Must be introduced by introducer) Nominee is must be specified. Photograph is most important for any account. To open this account the most important things is that Passport Photocopy or the National ID Card Photocopy must have to add with the account opening form.

3.2. D Account Closing

For two reasons, one can be closed. One is by banker and other is by the customer. By banker: If any customer doesnt maintain any transaction within six years and the A/C balance becomes lower than the minimum balance, banker has the right to close an A/C. By customer: If the customer wants to close his A/C, he writes an application to the manager urging him to close his A/C.

3.2.2 Clearing Section

One by one we worked 10 days in this section. The main responsibilities are to receive several cheques from clients. We also attached seal in the front and the back side of the cheque for clearing .Our responsibility were to ensure account no, account holder name, the accuracy of taka. In figure & in words which are properly stated in Banks cheques. 22

After confirming these cheqes were sent to our Boss. He was responsible for entry to the computer & completing other tasks.

3.2.3 Telegraphic Transfer (TT) pays order, (PO) & Demand Draft (DD) Section
When any TT reached to the Branch, we enter them in debit voucher, where we ensure that name account no. TT number and dates are correctly printed on the TT voucher. Hence we make sure the signature of two officers and lastly send this voucher to the computer department. In PO & DD leaf, where we ensure name of the organization, drawer branch, date & amount of money and signature of two officers.

3.3. Investment Division

Investment operation is the vital operation, which earn greater share of total revenue. Well planned and appropriate investment policy frame work is a pre-requisite for achieving the goal of the Bank i.e. implementation. The special feature of the investment policy of the Bank is to invest on the basis of profitloss sharing system in accordance with the tenets and principles of Islamic Shariah.

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Chapter Four Hire Purchase under Shirkatul Melk and its Services to Customer

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Introduction
According to a Common Law hire purchase mean," hire-purchase transaction in a contract whereby the owner lets out goods on hire and agrees that on completion of necessary payments, the hire may either return the goods and terminates the contract or elect to buy the goods. The hirer cannot sell the goods under hire. If this is done, the hirer may be liable to the owner for conversion. Section 2(1) of the Hire Purchase Act 1967defines hire purchases a agreement includes a letting goods with a option to purchase and an agreement for the purchase of goods by installment. A hirer is a person who takes the goods from the owner under the hire purchase agreement and includes the person to whom the hirers rights under the agreement have passed by assignment or by operation of law. The owner is a person who lets goods to be hirer under the hire purchase agreement and includes a person to whom the owners rights under the agreement have passed by assignment or by operation of law. There are some formations of hire purchase agreement.

Section 4 (1) of Hire Purchase Act 1967 provides that the hire purchase agreement must be in writing and must be sign it. Section 5(1) of Hire Purchase Act 1967 state that A hire purchase agreement that is not in writing shall not be enforceable by the owner. Section 39 of Hire Purchase Act 1967 state that if there is any alteration n the hire purchase agreement, the hirer must sign to show his consent. Section 4d of Hire Purchase Act 1967 requires a separate hire purchase agreement in respect of every item of goods purchased. Section 5 (2) of Hire Purchase Act 1967 state that at any time before the final payment is made the owner shall within 14 days give the copy for hirer. Section 7 (1)(b) of the Hire Purchase Act 1967 provides that the owner has the right to sell the goods before the property is pass to hirer.

HIRE PURCHASE IN ISLAMIC PERSPECTIVE

Usually Bank may supply implement or equipment or goods on rental basis in hire purchase transaction. The ownership of the implement or equipment or goods will be with the Bank and the client jointly and the portion of the client will remain to the Bank as mortgage until the possessed the equipment for certain period. The client, after completion of the installments, will be the owner of the implements or equipment or goods. Hire Purchase is a Special type of contract which has been developed through practice. Actually, it is a synthesis of three contracts:

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Shirkat or Shirkatul Melk. Ijarah Sale

SHIRKATUL MELK Shirkat means partnership and share in ownership. When two or more persons supply equity, purchase an asset, own the same jointly, and share the benefit as per agreement and bear the loss in proportion to their respective equity, the contract is called Shirkatul Melk contract. IJARAH The term Ijarah has been derived from the Arabic works (Air) and (Ujrat) which means consideration, return, wages or rent. This is really the exchange value or consideration, return, wages, rent of service of an asset. Ijarah has been defined as a contract between two parties, the Hire and Hirer where the Hirer enjoys or reaps a specific service or benefit against a specified consideration or rent from the asset owned by the Hire. It is a hire agreement under which a certain asset is hired out by the Hire to a Hirer against fixed rent or rentals for a specified period. Elements of Ijara According to the majority of Fuqaha, there are three general and six detailed elements of Ijarah. 1. The wording: This includes offer and acceptance. 2. Contracting parties: This includes a Hire, the owner of the property, and a Hirer, the party that benefits from the use of the property. 3. Subject matter of the contract: This includes the rent and the benefit.

The Hire (Muajjir) - The individual or organization hires or rents out the property of service is called the Hire (muajjir). The Hirer (Mustajir) - The individual or organization hires or takes the hire of the property or service against the consideration rent or wages or remuneration is called the Hirer (mustajir). The benefit or asset (Maajur) - The benefit which is hired or rented out is called the benefit (maajur). The Rent (Ajr or Ujrat) - The consideration either in monetary terms or in kinds fixing quantity of goods or money to be paid against the benefit of the asset or service of the asset is called the rent or ujrat or ajr.

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SALE This is a sale contract between a buyer and a seller under which the ownership of certain goods or asset is transferred by seller to the buyer against agreed upon price paid or to be paid by the buyer. Thus, in Hire Purchase under Shirkatul Melk mode both the Bank and the Client supply equity in equal or unequal proportion for purchase of an asset like land, building, machinery, transports etc. Purchase the asset with that equity money, own the same jointly, share the benefit as per agreement and bear the loss in proportion to their respective equity. The share, part or portion of the asset owned by the Bank is hired out to the Client partner for a fixed rent per unit of time for a fixed period. Lastly the Bank sells and transfers the ownership of its share or part or portion to the Client against payment of price fixed for that part either gradually part by part or in lump sum within the hire period or after the expiry of the hire agreement. Stages of Hire Purchase under Shirkatul Melk Thus Hire Purchase under Shirkatul Melk Agreement has got three stages:

Purchase under joint ownership. Hire Sale and or transfer of ownership to the other partner Hirer .

Types of sale contract in hire purchase under shirkatul melk As per procedure of transfer of ownership and legal title of the part owned by the Bank is transferred to the other partner, the sale contract may be of various forms, some of the major forms are mentioned below: 1. Hire Purchase under Shirkatul Melk through gradually transfer (sale) of legal title or ownership of the hired asset or property. Under this type certain asset or property is purchased with equal or unequal equity participation and owned jointly by the two parties, the Bank and the Client. The Banks share or portion of the asset is hired out to the Client partner against fixed rent or rentals per unit of time for a fixed period with a promise that the Hire Bank will sell or transfer the ownership of its portion to the Client Hirer gradually part by part in proportion to the consideration paid. So, the Hirer may acquire the full title of the Hires portion of the asset on payment of the total price at the end of the hire period. Under this system the total price of the hired property or asset should be determined and divided over the period of hire contract (per unit of time) so that the Hirer in addition to the payment of fixed rent or rentals may pay gradually the proportionate consideration of the total price of the hired property or asset to acquire proportionate ownership of the same part by part and become full owner of the hired asset at the end of the hire period.

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It should be noted that there should be a separate sale contract for payment or acquisition of each share (per unit of time as per hire deal) or part of asset sold to the Hirer and the amount of rent should be decreased proportionately with decrease of Hires ownership and increase of Hirers ownership on the property or asset. Whatever reason, the hire contract is revoked prior to the payment or transfer of full title to the Hirer, the Hirer will share that part of the title to the hired property which has been transferred to him against payment made by him and the remaining part will be shared by the Hire Bank. If Bank loss, after the sale of Banks share to the property or asset that shall be recouped from the Client or Clients security. In our Bank, we shall be following this type of Sale Contract in Hire Purchase under Shirkatul Melk. 2. Hire Purchase under Shirkatul Melk through transfer of legal title by gifts (for no consideration). Under this type the portion of asset owned by the Hire partner is hired out to the Hirer partner with a prior promise that the Hire, upon settlement of all the rent or rentals or installments by the Hirer, will transfer his ownership or title to the property to the Hirer through gift without any further consideration. After the expiry of the hire period and payment of all the rent or rentals or installments, the title of property may be transferred by a separate gift deed executed by the Hire or, the title may be transferred by issuing a gift deed by the Hire making it conditional on the settlement of all rental installments. In the later case, the legal title is automatically transferred as soon as the hire period expires and the fixed rent installments for rent are settled. The working of the agreement would be: If the agreed upon rental installments are settled within the agreed upon period, ownership of the asset will be transferred to the Hirer as gift. Under this mode the rentals fixed and agreed upon will be sufficient not only to amortize the capital outlay but also to yield an adequate amount of profit for the Hire. However, the rent or rentals agreed upon shall not be considered as price or part of price of the asset and the full ownership of the asset shall lie with the Hire till final settlement of the rent or rental installments. 3. Hire Purchase under Shirkatul Melk Through transfer of legal title (sale) at the end of hire period for a token consideration. Under this contract the possession of the asset owned by the Hire is hired out to the hire for a fixed period against fixed rent or rentals and at the end of the hire period the title to the asset is transferred to the Hirer by a separate sale contract on payment of agreed upon token consideration. The consideration may be equal to the value of the asset or not and it would be sufficient if a mutual agreement is reached on the consideration.

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4. Hire Purchase Under Shirkatul Melk through transfer of legal title (sale) at the end of Hire period for payment of a specified amount to the hire by the hirer This agreement includes an ijarah or hire contract and a sale contract. Under this agreement a specific asset is hired out for a fixed period against specific rent mentioning a specific consideration to be paid by the Hirer (buyer) after the expiry of the hire period and upon payment of the agreed upon consideration. The hired asset becomes sold and its title transferred to the Hirer (the buyer). Under the agreement, the hire contract becomes effective firstly and the sale contract will be effective only after the expiry of the hire contract. 5. Hire Purchase Under Shirkatul Melk through transfer of legal title (sale) period to the end of the hire term for a price that is equivalent to the remaining ijarah or rental instruction. This is an ijarah or hire purchase agreement which includes a promise made by the Hire that he will transfer the title of the hired property to the Hirer at any time during the hire period on payment of the remaining ijarah or rental installments, if the Hirer wishes so. Under this system first, the ijarah or hire contract becomes effective and remains so until the legal title is transferred to the Hirer. As soon as the title to the asset is transferred to the Hirer the ijarah or hire contract lapses for the remaining period, because both the benefit and the hired property become the Hirers property. This type of sale should be executed by a separate sale contract at the time of sale.

Important features of Hire Purchase

Important features: 1. In case of HPSM transaction the asset/ property involved is jointly purchased by the Hiree (Bank) and the Hirer (Client) the Hiree and the Hirer become coowner of the asset under transaction in proportion to their respective equity participation. 2. In HSPM agreement, the exact ownership of both the Hiree and Hirer must be recognized. 3. Under this agreement, the Hirer becomes the owner of the benefit of the asset but not of the asset itself, in accordance with the specific provisions of the contract, which entitles the Hiree, is entitled for the rentals. 4. As the ownership of hired portion of the asset lies with the Hiree and rent is paid by the Hirer against the specific benefit, the rent is not considered as price or part of price of the asset. 5. In the HPSM agreement the Hiree does not sell or the Hirer does not purchase the asset but the Hiree promise to sell the asset to the Hirer part by part only. 29

6. The promise to transfer legal title by the Hiree and undertakings given by the Hirer to purchase ownership of the hired asset upon payment part by part as per stipulations are affected only when it is actually done by a separate sale contract. 7. As soon as any part of Hirees ownership of the asset is transferred to the Hirer that becomes the property of the Hirer and hire contract for that share/part and entitlement for rent there of lapses. 8. In HPSM, the shirkatul melk contract is affected from the day the equity of both partied deposited and the asset is purchased and continues up to the day on which the full title of Hiree is transferred to the Hirer. 9. Effectiveness of the sale contract depends on the actual sale and transfer of ownership of the asset by the Hiree to the Hirer. 10. Under this agreement the bank acts as a partner, as a Hiree and at last as a seller; on the other hand the client acts as a partner, as a Hirer and lastly as a purchaser. 11. Ownership risk is borne by both the Hiree and Hirer in proportion to their retained ownership or equity. 12. The Hirer cannot, without obtaining prior written permission of the Hiree make any changes in the exact item of the hiree, or remove it from its place of installation and transfer into another location.

Rules:
1. It is a condition that the subject of the contract and the asset should be known comprehensively. 2. It is a condition that the asset to be hired must not be a fungible one which can not be used mire than once or in other words the asset must be a non-fungible one which can be utilized more than once or the service of which can be separated from the asset itself. it is a condition that the subject of the contract must actually and legally be attainable. 3. It is a condition that the Hirer shall ensure that he will make use of the asset as per provisions of the Agreement.

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4. It is a condition that the Hirer shall ensure that he will make use of the asset as per provision of the agreement. 5. The hire contract is permissible only when the asset and the benefit derived from it is with in the category as per Islamic Shariah. 6. In a hire contract, the period of hire and the rental to be paid per unit of time be clearly stated. 7. Everything that is suitable to be considered a price, in a sale, can be suitable to be considered as rental in a hire contract. 8. It is permissible to advance, defer or install the rental in accordance with the agreement. 9. It is permissible to make the Hirer to bear the cost of ordinary routine maintenance, because this cost is normally known and can be considered as part of the rental. 10. If the hired asset is damaged or destructed by the act of Allah and if the Hiree offers a substitute with the same specifications agreed upon in the hire contract the contract does not terminate. 11. Under HPSM agreement, both the Hiree and the Hirer must pay their respective equity as agreed upon to purchase the demised asset under joint ownership. 12. Ownership of the asset of both the Hiree and the Hirer should be recognized as per law of the land.

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CATEGORIZAT1ON
1. Hire Purchase under Shirkatul Melk Commercial Investrnent on Hire Purchase under Shirkatul Melk mode to Individual/Firm/Company/Society for Commercial purpose(s), shall be termed as Hire Purchase under Shirkatul Melk Commercial. 2. Hire Purchase under Shirkatul Melk Industrial Hue Purchase under Shirkatul Melk Investment to Industrial undertakings in the Form of Land,Building,Machineries, Equipments, Transport, etc. shall be tanned as Hire Purchase under Shirkatul Melk Industrial.

3.Hire Purchase under Shirkatul Melk Agriculture Hire Purchase under Shirkatul Melk Investment to agriculture sector in the form of Agricultural Equipments, Machineries, Shallow Tuba-WeII, Deep Tube-Well, Tractor, Trailers, Transport etc shall be termed as Hue Purchase under Shirkatul Melk Agriculture. 4.Hire Purchase under Shirkatul Melk Transport Hire Purchase under Shirkatul Melk Investment in the form of Transport- Bus, Truck, Car, Taxi, Launch, Steamer, Cargo Vessel, Air Transport etc. shall be termed as Hire Purchase under Shirkatul Melk Transport. 5Hire Purchase under Shirkatul Melk Real Estate Hire Purchase underShirkatul Melk Investment in the form of Land Building. Market, Apartments, for use/rental shall be termed as Hire Purchase under Shirkatul Melk Real Estate.

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Processing &Appraisal
` 1. Check-up Credit Restriction schedule of Bangladesh Bank and Head Office current Investment Policy Guidelines. Reject the proposal, if it acts with the existing Credit Restrictions of Bangladesh Bank and Head Office Policy Guidelines. 2. Visit the Business Establishment of the Client. Tally/verify the securities, particulars, information and figures given in the Application Form with the original Documents/Papers and be sanguine about its genuineness and correctness. Obtain additional information, particulars, facts and figures, if required. 3. Talk to the business and important personalities of the locality to ascertain the honesty; integrity and business dealing of the Client. 4. Request for Confidential Report of the Client from local Ban' Branches. Do not Finalize the proposal until the Confidential Report from all Bank Branches are received. 5. Confidential Reports should also be obtained from local Financial Credit and Leasing Institutions, if felt necessary. 6. Obtain Report front Credit Information Bureau (CIB) of Bangladesh Bank through Hand Office Investment Division as per Circular issued by H .O. from time to time in this regard. 7. Obtain declaration of the Client about his liability (both contingent and real) with other Banks/Financial Institution/Leasing Companies etc. including any other branches of BBL. 8.Obtain Financial Statement/Balance Sheet of the concerned applicant(s) for last three consecutive accounting years for investment proposals of Tk.50.00 lac and above or as per Head Office instruction.This is to be furnished by all Clients irrespective of their status i.e. Individuals, Proprietorship, ` Partnership, Private/Public Limited Company, Trust Body etc. engaged in business. 9 Inspect Land Building(s), other assets and Properties proposed to be mortgaged or hypothecated as collaterals. Ascertain prima-facie genuineness and correctness of those collaterals s in cross-references to Documents, Title Deeds and other _ relevant Papers. Ascertain primarily the market value and the forced sale value of the proposed collatarals.

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10. Please study the following carefully and note down the actual findings in the Appraisal Form against each item. Whether the asset, which the Client intends to hire and purchase, is readily useable and have constant and effective demand in the market Whether the pike of the asset is subject to frequent and violent changes Whether the as is non-fungible or has flow of services. Whether the quality and other specifications of the asset as desired by the Client can be ensured. Whether the assets are available in the market and it is possible to purchase/ construct/manufacture/make the asset in time and at the negotiable price/cost. Whether rental and sale price of the assets are payable by the Client at the agreed specified future datr,(s) in lump sum or by installments as per proposal. Whether Client & Bank's equity ratio is fixed-to cover the price/cost of the asset. Whether the project/deal is profitable to generate sufficient fund to pay the rent / sale price by the Client within the deal period. Note: Market /nice and Cost price should be carefully studied by the Investment Committee of the branch and properly recorded, verified and signal. 11. For Hire Purchase under Shirkatul Melk Investment (other than the Schemes), prepare Appraisal Report on F-16713. For Appraisal of Hire Purchase under Shirkatul Melk Industrial / Agriculture /....Scheme, use specific Appraisal Form devised for each of those, if any, otherwise F-167/B, providing the available/required supplementary information. In wane of preparation of the Appraisal Report please ensure .incorporation of all information, particulars; figures and statistics in Appraisal Form correctly with special attention to the following: Composition of assets of the Client viz. Cash, Securities, Investments, Building, Landed Property, Stock in Trade, Stores, Work-in-process etc. Extent and nature of liabilities (institutional/market) of the Client i.e. whether the volume is within the manageable capacity of the Client Opinion in this regard and justification thereof must be clearly mentioned.

12. Guideline for working out the cost Price of the asset
Workout the coat price of the asset and other expenses to be incurred to bring the asset into useable condition as per following guidelines: 12.1. Cost Price of the Assets a) Purchase price of the asset PLUS Other expenditures concerning the purchase i.e. Transportation, Storage, cost of construction, cost of installation, making etc. before hire of the asset to the Hirer partner. b) Conveyance -TA/DA of Bank Official or the Agent, if c) Commission paid to the Agent, if any. d) - Cost of remittance of frond. e) Transportation cost upto Bank's Godown/Client' Project Site(if any). f) Transit Insurance and out of Pocket expenses. 34

g) Other Expenses except interest incurred , if any, Interest element, if any, is to be paid by the Hirer partner. h) Go down, rent and godown staff Salaty, if any, incurred before delivery/handing over the asset to the Hirer in good and usable condition. i) Income loss sustained dutitig the gestation period if for any reason the Client after handing over the asset to him in good and usable condition uses Bank's godown, the godown rent and godown staff salary will be borne by him (Hirer partner). .

13. Fixation of Rental and the sale price of the Asset

The sale price of the asset(Bank's share I portion) will be fixed normally on the cost price of the assets as incurred/calculated on the basis of the guidelines given at pars 7.15.1 above taking into account the Expected Rate of Return (ERR) for the whole period of investment inch/ding the gestation period into consideration.

14.

In case the Investment is Collaterally/Additionally secured by Pledge of Shares of reputed Public United Company on Bank's approved list and quoted in the Stock Exchange, the following additional Documents are to be obtained: Agreement for Pledge of Share alongwith original Share Certificates (No share in the name of minor shall be accepted as security). Blank Share Transfer Deed in Duplicate - copy signed, dated an another copy signed and undated. Share delivery letter addressed to the Bank Letter to the concerned Company to register Lien in Bank's favour. This notice shall be seat by Registered Acknowledgement Due Post (Registered A/D Post) and confirmation of recording the Lien shall be obtained from the concerned Company. 15. PURCHASE OF ASSET/PROPERTY BY THE BANK

15, 1.Remember that true Purchase under Shirkatul Melk is perfectly a legitimate
transaction according to the Shariah, provided: That the asset / property desired by the Cheat (Hirer) - is first purchased by the Bank and the Client jointly. The ownership to the asset / property shall be as per equity participation of the Bank and the Client. Rent will accrue only after delivery of the asset / property to the Himr. usable condition/good order. That after purchase of the asset / property, the risk of the asset / property is borne by the owners the Bank and the Client, until the title /ownership of the Bank's portion of the asset/property has been passed on to the Client (Hirer) - Hirer, i.e. "the Bank and the Client - owners would have to continue to be responsible for

35

any loss, damage or theft of the asset /property until the asset / property is actually delivered to the Client(Hirer)." That the specification of the asset, delivery schedule and other terms of contract are fulfilled. Any deviation from the above conditions will make the transaction defective. 15.2 In case of purchase of asset/property under Hue Purchase under Shirkatul Melk transaction the following procedures shall have to be followed: Obtain deal-wise Request from the Client for Purchasing the asset / property detailing therein the specifications such as Name, Description, Quality, Quantity, etc. of the asset The Bank will examine die specification of the assat/property and verify the price from the market, marketability / use of the asset/ property and will purchase the asset/property with the Client's and the Bank's equity, on Client's Undertaking/agreement to take on re the Bank's portion and to Purchase the same from the Bank on Hire Purchase under Shirkatul Melk basis. Maintain investment Account Opening Register (B-102) sector-wise prefixing Cheat's Fixed Number giving deal number chronologically. Sector-wise separate folio shall be allotted for each deal of investment. Enter the particulars of the Account in the Investment Ledger (B-n). Complete all Ledger Head particulars and get them authenticated by an authorized official. It should be carefully noted that purchase/installation/construction/ establishment of the asset shall be made only after completion of all the Documentation formalities including Pre-Audit Memo (F-215/F-218).

16. TAKING DELIVERY OF ASSET BY THE BANK (HIREE) AND THE (CLIENT) HIRER
16.1 After finalization of purchase of the }&e Purchase under Shirkatul Met& asset property either by the Bank officials, or through any Agent or the Client Agent from the local or outstation main, the Bank shall request the seller/ suppliers to deliver the asset/property purchased (as per tams of transaction) to the Bank's Authorized Official / Agent / Representative / Client / Bank's .godown proper acknowledgement Accordingly the authorized official / .AWW / Representative / Client shall receive delivery of the asset/property on behalf of the Bank by signing the Delivery Alan or the ' Cash Memo/Purchase Schedule which will be in the name of the Bank and the Client. 16.2 After taking, delivery of the asset/property by the Bank or through an Agent, the Bank shall make payment of the price of the asset/property to Producer /Seller through TT/DD/PO or IJC against C-ash Memo/ Money Receipts wit shall be in the name of both the Bank and the Client of as per Hire Purchase under Shirkatul Melk Agreement.

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17. PAYMENT SCHEDULE FOR RENT AND PROPOSED SALE PRICE 17.1 Fix-up the rent per unit of time (Daly, Weekly, Monthly etc.) for Bank's share / part of the asset/property as par Sanction Advice duly accepted by the } firer partners to be effected from the date of handing over the asset in usable form to the Hirer Partner 17.2 Fix-up the schedule of payment of rent Fix-up the Sales Price of the Bank's share / portion of the assets as per terms of Sanction Advice duty accepted by the Client keeping in view the gestation period and ensuring minimum expected Rate of Return. Fix-up the schedule of payment of sale price of Bank's Share / Portion of the asset either in installment or lump sum basis as per sanction advice. Total number of installments) and the account of installment and last date of payment of each installment be mentioned. Number of installment will be 'equal to the munber of share into which the asset (Bank's share / portion) is divided. Execute the Hire Purchase under Shirkatul Melk Agreement (as * proforma) which must be fully filled in and signed by both the parties, the Client said the Bank duty witnessed and stamped. The agreement must contain amongst other the following clauses: Undertaking for buying, the asset/property by the Client & selling the same by the Bank within the hire period or on or before expiry of the hire period. The Buying and Selling may be part by part or it may be at a time as a whole. Indemnity chaise to the effect thin if the Client fails for any reason to pay the accrued rent / the sale/purchase price during or on or before, the expiry of the hire period as per agreement he must pay to/indemnify the Bank for the loss, if any, sustained by the Bank due to disposal of the asset in the manner deemed appropriate by the Bank.: The rent on the Bank's portion of the asset shall continue to accrue at the prescribed rate or as per agreement till full and final payment of purchase commiseration sale price is made by the Client partner, the Hoer. The Bank shall have the right to recover the income loss from the security offered by the Chant and the Clint should furnish adequate securities for the purpose. Registration clause to the effect that the asset/property purchased jointly under joint ownership of the Bank and the Client, which shall be registered in the name of the Bank and/or the Client/or any third party as mutually agreed upon by both the partial (the Bank and the Client).

GESTATION PERIOD
The period from the date of 1st disbursement for acquisition of the asset/property to the data of handing over of the asset/property to the Hirer in good order and useable condition to derive the desired service(s)benefit(s) is called "Gestation/Interim period" for making/construction/ installation of the asset into 37

usable condition. During the gestation period. the asset remains under construction/ installation / making form, so the asset can not yield the desired services/benefit(s). and as such no rent should be charged for that period. However, taking the cost; utility, value addition, market demand for the asset Sale Price, of the Bank's share of the asset/property may be fixed at a higher Level to cover the cost/benefit of the `Gestation Period' or in other words, the Bank may sell its share in the asset at a higher price with mutual consent of the Bank and the Purchaser. So, the Bank shall not charge any rent during the Gestation/interim period of investments under Hire Purchase under Shirkatul Melk but it shall fix the sale price of the asset at a higher level in such a way to cover its Expected Rate of Return (ERR) for the entire hire period including gestation period. Thus the, Bank may fix the price of its share / portion of thetaking the cost price of the same plus the consideration of gestation period into account. 8 . 0 0 8 . 0 1 8 . 0 2 9 . 0 3

INSURANCE

The Client shall obtain Comprehensive Insurance Policy equal to the Price of the asset Plus 10%(ten percent) covering all usual ride with Bank Mortgage Clause. Insurance Policy shy be obtained from any Islamic Insurance Company or from Sadharan Bima Corporation or from any Insurance Company on Bank's Approved list.

In case of leaving the asset to the Client's possession/use/comprehensive contact Insurance coverage shall shall be obtained by the Client with Bank Mortgage claim. The Client will hand over the Insura Policy/Cover Note and Premium Paid Receipt etc. to the Bank for record and preservation. On receipt of the Policy check it up to ensure that it has been issued for the amount and with the warranties desired by the Bad and also the Policy Is dully Stamped

8 . 0 4

Enter the Policy in the Insurance Policy Register (B-39) and preserve it in a Fire proof Safe/ joint custody of the 1ncumbent-ih-Chiarge of the Branch and the Officer-Incharge of the Investment Department/Second Officer

A Inve

. If any Accident occurs, advise the Client to Lodge Claim through the Bank to the concerned Insurance Company, duly complying with all formalities within the stipulated time/period.

38

 In case, the Client does not take Insurance cover, do it on behalf of the Client by debit to the respective Investment account with intimation to the Client. This will be recovered from the Client. If the asset is pledged/hypothecated and stored in Bank's insured godown proportionate premium from the Client. FOLLOW-UP, SUPERVISION, RECOVERY AND ADJUSTMENT Complete the File Client-wise with the Copies of Application, Appraisal Report, Sanction Advice and other Documents and Papers viz; Trade License, Income Tax Payment Certificate, Partnership Deed/Memorandum & Articles of Association etc. submitted by the Client with the Otiginal Application. Copy of all correspondences made and reply waived thereto shall be chronologically preserved in this file. The pages of the File shall be serially numbered and it shall be preserved under the joint custody of the Incumbent-in-Charge of the Branch and the Officer-in-Charge of Investment Department/2n Officer of the Branch. They will ensure-monitor the transaction till it is adjusted as per agreement. Maintain Due Date Diary (13-101) showing therein, Interalia, the Due Date of installment (Principal/rent), Adjustment of investment This Diary shall be checked by the Incumbent-in-charge of the Branch Daily at the opening of Business hour. The Client shall be reminded from time to time. The last reminder should be given 7(seven) days before Due Date of payment of installments or final adjustment A note of warning will be given to the effect that unless the Bank's dues installments(Principal/rent) is paid within the stipulated period, Bank shall resort to legal action against the Client and his guarantor. Realize the Bank dues on or before due date. Collect Market position of the asset regulariy, supply to die Client Scan, scrutinize and analyze the trees& of the market and maintain close liaison/contact/ with the Client for payment of Bank's dues/accrued rent and sale price o as per commitment of the Client Partner (heir buyer) Client's business position/statement of Profit & Loss A/c 'and Balance Sheet etc. should be obtained periodically to ascertain Statement of Affairs of the Business. If any investment is secured by Personal Guarantee of any Third party, the guarantor should also be brought under constant and effective follow-up.

CALCULATION OF MONTHLY INSTALLMENT

Calculation of monthly installment for the Investment allowed under HPSM mode (or Investment allowed against payment in installment basis). Total Rent/Profit = (P +Pi) / 2 x RR x N + G Where, P = Amount Disbursed /To be disbursed P1 = Principal Installment RR = Rate of Return 39

N= Total period of Investment (excluding gestation period). G = Un earned Rent / Profit for gestation period. Monthly Installment = Monthly Principal + Average Monthly Rent OR Average monthly rent =( I x R) / 2400 Where I = Principal + Monthly Installment R = Rate of Return Rent of the gestation period is to be calculated also & spreader over the whole period of the investment and to be added up with the monthly installments. Monthly Installment = Monthly Principal + Average Monthly Rent 2400 = 12 months x 2 (reducing balance method) x 100 (Percentage) ** Plus rent of the gestation period considering higher asset value.

Problem :
Suppose an HPSM Investment of Tk. 5,00,000/- was allowed to a client for a period of 5 years excluding gestation period of 1 year at 15% RR. What will be the monthly installment ?

Calculation:
Principal (P) = Tk. 5,00,000/= Principal Installment (Pi) = Tk. 5,00,000/- 60 = 8,333/Rate of Return (RR) = 15% Period of Investment (No. of years) = 5 Un Earned Rent/Profit for gestation period (G) = Tk.75,000/Total Rent / Profit = (P + Pi)/2xRRxN + G = (5,00,000+8,333)/2 x 15% x 5 + 75,000 = 2,54,166.50 x 15% x 5+ 75,000 = 2,65,624.87 Monthly rent / Profit = 2,65,624.87 60 = 4,427/Monthly Installment = Principal + Rent / Profit = 8,333 + 4,427 = 12,760/-

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Uses of Hire Purchase under Shirkatul Melk in Different Schemes

1. Housing Investment Scheme
One of the basic human needs is to have a house to live in. A house is an abode of peace and happiness. Housing has now become an acute problem in the country, specially in the towns, cities and metropolis. With their limited income, it has become almost impossible on the part of the lower middle class, middle class and sometimes, even for upper middle class to solve their housing problem. To meet this basic human need, Islami Bank Bangladesh Limited is committed to contribute to this end to provide a peaceful and happy living. The Bank has introduced 'Housing Investment Scheme' with the objective to ease and minimize the housing problem and assist service holders and professionals with limited income in materializing their dream of becoming owner of houses. Objectives:

To extend the benefits of the investment of the Bank under the Scheme to different sections of the people To assist in solving the existing housing problem of the country To assist the service holders and professionals with fixed income to arrange for houses of their own.

Eligibility: Initially the following categories of people shall be eligible to apply for availing investment facilities under this Scheme:

Officials of the Defense Forces.

41

Permanent

Officials

of

Government,

Semi-Government

and

Autonomous Organizations.

Teachers of the established Universities, University Colleges & Medical Colleges Graduate Engineers, Doctors and established professionals. Bangladeshi Officials of reputed Multinational Companies, International Financial Organizations, Donor Agencies, Foreign Embassies etc., Officials of local established & reputed Public Limited Companies

The client must be legally acceptable for mortgage to the Bank. If the investment client is a service holder then he must have at least 5 years un-expired service prior to retirement.

2. Real state Investment Program

Professionals, Service-holders, Businessmen, Real Estate Developer and other categories of people who are not entitled for availing investment facilities under Housing Investment Scheme, shall be eligible under this programme. Investment is to be extended to build new houses and for extension/ completion of the house already constructed, commercial building, shopping complex, flat/apartment etc.

3. Transport Investment Program

The role of modern communication is most vital for the socio-economic growth and uplift of a developing country like Bangladesh. A sound and efficient communication network is the pre-requisite for sustained development through the expansion of trade, commerce and industry. Period of Investment: Maximum 3 years from the date of delivery of the vehicle. Security: The ownership of the vehicle shall remain in Bank's name till full repayment of investment including rent.

42

The client shall have to mortgage immovable properties as collateral security. In case of Officials of Government, Semi-Government and Autonomous Bodies, personal guarantee of the officer of the same grade or of superior grade and in case of officials of public limited company or business houses, corporate guarantee of the employer/ chairman/managing director shall have to be provided.

4. Car Investment Scheme

Islami Bank, being welfare oriented banking institution, has by now deigned and implemented a good number of investment schemes keeping in view the needs of different sectors and various sections of the people for their socio-economic upliftment and to improve their quality of life. The investment schemes including the "Transport Investment Scheme" and the "Household Durables Investment Scheme" so far introduced have gained popularity and received wide response from the people. Client's Equity: Minimum 30% of the purchase cost of the vehicle. The amount of equity shall have to be deposited with the Bank before disbursement of Bank's investment. Period of Investment: Period of investment is maximum 4 (four) years from the date of disbursement or delivery of the vehicle to the client, whichever is earlier. Bank's Charges:

Rate of Return: 13% per annum or the rate to be determined time to time. Risk Fund: 1% per annum (2% per annum where the supervising agents not engaged). Supervising Charge: 1% per annum. Nil, where supervising agents not engaged.

5. Investment scheme for doctor

One of the fundamental rights of every man is to receive necessary medicare facilities. Majority of our people are denied and deprived of this right and a large number of our

43

children are ill fed and suffer from malnutrition and ill health. Subsequently they become victims of various diseases due to lack of education and knowledge about health care and preventive measures. Medicare facilities as a whole are very limited in the country. Although medical facilities are available to some extent in the cities and towns, majority of the people of the rural area die without medicare and treatment after prolong sufferings from various diseases. Purpose of Investment: Establishment cost of Chambers, Pharmacies & Clinics. Procurement of medical equipment and purchase of Motor Cycle for visiting patients in rural areas- in case of newly passed medical graduates willing to settle in district and Thana towns under selfemployment. Procurement of modern medical equipment by experienced and established doctors. Procurement of modern and sophisticated medical equipment and appliances by specialists and consultant physicians. Cost of establishment of clinics, purchase of machinery, equipment, accessories and other goods in case of establishment of clinics by a group of doctors.

6. Small Business Investment Scheme

Bangladesh, a third-world developing country, is rich in natural and human resources. In spite of vast possibilities, the majority people of the country live in hardship-below poverty line as these resources are not being properly tapped, explored and exploited. Physical labour is their only means of earning. A large segment of this populace is active youth force. Many of them are efficient, intelligent and energetic with initiative & drive and have courage to take risks. But they can not uplift their socio-economic condition due to poverty, lack of financial support and other required facilities. Lack of capital compelled many small traders to leave their profession. As a result the unemployment problem has been increasing day by day, and the unemployment youths, finding no avenues of employment, are getting themselves involved in anti-social activities creating threat to the social life. Sectors of Investment: 44

Livestock Fishery Agro-processing Manufacturing Trading/shop keeping Transport Services Security: For Investment up to Tk. 30,000.00

Hypothecation of existing and future stock of goods. Ownership of machines &equipments shall remain in Bank's name. Personal guarantee of financially sound respectable 2 (two) persons/prominent businessmen acceptable to the Bank shall have to be given.

Collateral security may be relaxed considering the feasibility of investment and client's ability and sincerity.

Recovery Procedure:

For HPSM investment: Monthly installment basis

7. Agriculture Implements Investment Scheme

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

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Objectives: To create opportunities for self-employment of un-employed rural youths. To help farmers to augment agricultural production. To assist in the introduction and use of modern technology in the agricultural sector. To play auxiliary role in achieving self-sufficiency in food production. Period of Investment: Two Years Repayment Procedure: The investment shall have to be repaid in 4 instalments within a year. The instalment shall be fixed on the basis of the sowing/transplantation and harvesting seasons of the crop. The branch Manager shall decide both the amount and time of the repayment of instalment.

8. Micro Industries Investment Scheme

Bangladesh as a developing country has been trying for its overall economic growth. One of the major problems confronting its growth is lack of development of enterprises and potential entrepreneurs who can create more job opportunities by establishing new enterprises in the industrial sector Objectives: The main objectives of the scheme are as follows: To create income generating employment opportunities through establishment of new micro industries and BMRE of existing units by providing necessary investment facilities. To encourage establishment of micro industries in different areas of the country by potential entrepreneurs like educated unemployed youths, technically qualified and skilled /semi skilled persons. Eligibility: The eligibility criteria for the selection of the entrepreneurs under the scheme will be as under:

46

Engineering diploma or degree holders, or persons having diploma or certificate from any Technical /Vocational Training Institutes and willing to set-up micro industries.

Educated unemployed youths having initiative and knowledge regarding the proposed industry.

Period of Investment:

Capital Machinery : 5(five) years including reasonable gestation period. Raw Materials : One year from the date of 1st disbursement.

List of Micro Industries:

Food and Agriculture Industries Plastic & Rubber Industries Forestry & Furniture Industries Engineering Industries.

Investment decision model

Islamic banking, for its profit-loss sharing character, is conceived as more productionoriented and growth promoting than its conventional counterpart. This is because the banks earnings are directly linked to the earnings generated from the venture financed by it. Further, replacement of interest with the principle of profit-loss sharing increases the horizon of investment opportunity in an economy. It also promotes efficient allocation of financial resources, ensures equitable distribution of income and promotes stability in the economy. Thus, Islamic banking is efficient from most of the macroeconomic measures of efficiency. The efficiency of the Islamic banking system can best be illustrated when the investment decision-making procedures between the two systems are analyzed. This necessitates an analysis of the investment decision model.

The Salient Features of the Investment Policy are outlined below:

1. Observance of the legal investment limit of the bank.

47

2. Observance of the legal investment limit per client 3. Optimum utilization of invest able fund. 4. Profitability of the investments. 5. Safety and security of the investments. 6. Investment at minimum possible risk e.g. default risk and liquidity risk etc. 7. Liquidity of investments. 8. Conform to central banks investment restrictions / priority. 9. Performance to short term investments 10. Performance to the investment for small amount / size. 11. Satisfactory return on investments

Sector wise investment:

To suit the needs of client of different strata in the society islami bank sanction & disburse data in different sector through Hire Purchase under Shirkatul melk. The mentioning sectors of investment of IBBL are: Industry Commerce Real Estate Agriculture Travel SME Others Particulars Industry Commerce Real Estate Agriculture Travel SME Others 2010 113979 46142 11336 14252 4583 72933 0 2009 101020 37502 8649 14057 3520 49337 531

(Amount in Million Taka) Source-Annual Report of IBBL,2009,2010 48

Figure: Sector wise investment

Interpretation
From the above graph ,it can be said that IBBL distribute its investment facilities according to different sectors. In 2010 bank invested in industrial sector the most.

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Mode wise investments:

The bank arrange investments in different modes based on Islamic shariah. Year wise investments of IBBL are.. (Amount in Million Taka) 2010 Bai Murabaha Hair Purchase under Shirkatul Melk Bai Muajjal Bill Purchase &Nego Quard E Hasana Bai Salam Murabaha Musharaka Others 146135 80093 12393 5141 2095 3624 1500 12244 0 2009 117180 73871 7318 11289 2833 2082 0 43 0

Source-Annual Report of IBBL,2009,2010

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Interpretation
From the above graph ,it can be said that IBBL distribute its investment facilities according to different modes. In 2010 & 2009 bank invested in murabaha &hire purchase.

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Mode wise investments in %: Particulars Investment Mode Bai Murabaha Hair Purchase Bai Muajjal Bill Purchase &Nego Quard E Hasana Bai Salam Mudaraba Musharaka Total 55.52 30.42 4.71 1.95 0.8 1.38 0.57 4.65 100 54.6 34.42 3.41 5.26 1.32 0.97 0 0.02 100 2010 2009

Source-Annual Report of IBBL 2009,2010

52

Interpretation
From the above graph ,it can be said that IBBL distribute its investment facilities according to different modes. In 2010 & 2009 bank invested in murabaha & hair purchase.

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Chapter Five Major Findings and Analysis

54

Performance of IBBL including Hire Purchase under Shirkatul Melk

SOURCES OF FUNDS

The financial resources of the Islamic banks consist of ordinary capital resources comprising paid-up capital and reserves, and funds rose through borrowings from the central bank and other banks (inter-bank borrowing), and issue of Islamic financial instruments. The major part of their operational funds is, however, derived from the different categories of deposits accepted on the Islamic principles of Al-Wadiah (safe custodianship) and Mudaraba (trust financing). For the sake of ease of understanding we call these two sources as Primary and Secondary. These are discussed as under. PRIMARY SOURCES

Paid-Up Capital Islamic banks are public limited companies incorporated under the companies Act, which are listed on the Stock Exchange. Individuals and institutions, local and foreign, have subscribed their capital. For example, the First Islamic bank of Bangladesh - Islami Bank Bangladesh Limited (IBBL)- is a joint venture of Bangladesh and overseas capital in the ratio of 38:62. Its local capital is owned by the Government of Bangladesh and private individuals and institutions. The overseas capital (62%) of the bank is owned by the institutions and individuals as follows. i) ii) iii) iv) v) Islamic Development Bank, Jeddah, Saudi Arabia Kuwait Finance House, Kuwait Bahrain Islamic Bank, Bahrain Jordan Islamic Bank, Jordan Al-Rajhi Company for Currency Exchange and Commerce, Saudi Arabia

55

vi) vii) viii) ix) x) xi) xii) xiii)

Dubai Islami Bank, UAE Islami Investment and Exchange Corporation, Qatar Ministry of Awqaf and Islamic Affairs, Kuwait The Public Authority for Minor Affairs, Ministry of Justice, Kuwait Public Institution for Social Security, Kuwait Ahmed Salah Jamjoom, Saudi Arabia Fouad Abdul Hameed Al-Khateeb, Saudi Arabia Islamic Banking System International holding S. A. Luxembarg

Similarly, joint-venture Islamic banks have been established in quite a few other Islamic countries like Egypt, Sudan, Senegal and Turkey. The Islamic Development Bank has also participated in the share capital (and represented in the Management Board) of a number of Islamic Banks set up in the OIC member countries in order to promote Islamic financial institutions. The capital resources of the Islamic banks are mobilized through the issue of shares for which negotiable share certificate are used. With prior permission from the Government, shares are issued from time to time. Laws governing the shares correspond to the Musharaka laws of Shariah. The holders of shares have management (voting) right and participate in the profit/loss of the bank. The shares are transferable. In the case of the IBBL, its entire capital is denominated in the local currency - i.e. Taka, though the foreign shareholders had to pay for their shares in US Dollars. The central bank requires the Islamic banks to have and maintain capital funds, unimpaired by losses or otherwise, in such proportion to such assets of their branches and offices as may be prescribed from time to time by the central bank by notice in writing. Capital funds mean paid-up capital and reserves and any other sources of capital as may be defined and computed in such manner as may be prescribed by notice in writing from time to time by the central bank. Banking rules of Bangladesh require that the paid-up capital and reserves together must not be less than 8-00 percent of the Islamic banks' risk weighted asset (total deposit liabilities).

Reserves The central bank also requires that every Islamic bank shall maintain a reserve fund. Before 56

any dividend is declared, an Islamic bank shall transfer to the reserve fund out of the net profits of each year, after due provision has been made for Zakat and taxation, a certain percentage of the net profits in order to build up adequate reserves. If the central bank is satisfied that the aggregate reserve fund of an Islamic bank is adequate for its business, it may by order in writing exempt the bank from this requirement for a period of one year. In Bangladesh, the IBBL besides maintaining the statutory reserve, has built up an Investment Loss Offsetting Reserve (ILOR) by appropriating 10 (ten) percent of the bank's annual investment profits. Liquid Assets Every Islamic bank is further required to keep at all times minimum amount of liquid assets against its deposit liabilities expressed as certain percentage of the deposits, as may be prescribed from time to time by notice in writing by the central bank. For this purpose, liquid assets mean (i) cash in bank, (ii) balances with the central bank/other designated banks, (iii) Government Investment Certificates, and (iv) such other assets as may be approved by the central bank. Failure to keep the minimum liquid assets invokes penalty for each day of deficiency. Borrowing From Central Bank To tide over temporary liquidity shortages Islamic banks, as member banks, are entitled to borrow from the central bank, as the lender of last resort. In such cases, IBBL does not pay interest like the conventional banks. Such borrowing from the central bank is treated as a PLS deposit with the Islamic banks and profit is paid at the rate payable on corresponding PLS deposit of the bank. Inter-Bank Borrowing The Islamic banks have established interest-free fund arrangements with local and foreign banks on the basis of reciprocity. Normally, under prior arrangement, the Islamic banks keep surplus funds with selected banks. When needed, these banks also place interest-free compensating balance with the Islamic bank. If balances are not equal, then periods for which funds placed are adjusted.

SECONDARY SOURCES ( MOBILIZATION OF DEPOSITS )

57

Five year performance of IBBL

58

( Amount In Million Taka ) Part Particulars Authorized Capital Paid-up Capital Reserves Fund Total Equity Total Deposits (Including bills payable) Gross Total Investments (Including Inv in Share) Gross Import Business Export Business Remittance Total Foreign Exchange Business Total Income Total Expenditure Net Profit before Tax Payment to Government (Income Tax) Dividend Total Assets (including Contra) Total Assets (Excluding Contra) Fixed Assets No. of deposit account holder 2005 5,000.00 2,764.80 5,450.94 8,331.14 108,261 102,145 74,525.00 36,169.00 36,948.00 147,642.00 10,586.78 8,424.36 2,162.42 973.09 25% (Stock) 150,959.66 122,880.35 3,067.99 2,705,180 2006 5,000.00 3,456.00 6,551.23 10,435.96 132,814.00 123,959.00 96,870.00 51,133.00 53,819.00 201,822.00 14,038.30 11,129.63 2,908.67 1,490.12 2007 5,000.00 3,801.60 7,418.04 14,957.74 166,812.78 174,365.55 137,086.00 66,690.00 84,143.00 287,919.00 17,699.51 13,918.70 3,780.82 2,322.46 2008 10,000.00 4,752.00 9,308.00 18,572.00 200,725.00 198,763.00 168,329.00 93,962.00 140,404.00 402,695.00 23,454.00 15,151.00 6.348.00 3,647.00 30% (Stock) 288,017.19 230,879.14 4,407.00 4,361,896 2009 10,000.00 6,177.60 13,927.94 23,619.81 244,292.14 255,272.41 161,230.00 106,424.00 194,716.00 462,370.00 25,403.86 18,886.20 6,517.66 3,253.23 10%(Cash) 20%(Stock) 340,638.49 278,302.84 6,512.36 42,72,123

15% (Cash) 25% 10% (Stock) (Stock) 188,115.27 150,252.82 3,724.69 3,207,131 250,012.79 191,362.35 3,987.23 3,802,709

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No. of investment account holder Cumulative amount of disbursement from RDS Outstanding Investment of RDS RDS no. of A / C holder RDS no. of village Number of Foreign Correspondents Number of Shareholders Number of Employees Number of Branches Book value per Share ( Taka) Earnings per Share (Taka) Market Value per Share (Taka) (Highest) Capital Adequacy Ratio ( Note : One Million = Ten Lac )

297,943 6,033.36

421,751 9,303.12

508,758 13,969.01

498,362 18,768

1,62,736 24,239.00

1,106.00 164,116 4,560 860 17,201 6,202 169 3,013 487.57 5,580.00 9.44%

2,242.00 295,012 8,057 870 20,960 7,459 176 3,020 368.42 4,749.00 9.43%

2,885.00 350,278 10,023 884 26,488 8,426 186 4,147 375.46 6,986.00 10.61%

3,012 321,484 10,763 906 33,686 9,397 196 238 56.29 830 10.72%

3,752.00 492,475.00 10,751.00 919 52,164.00 9,588 231 325 55.10 890.00 11.65%

Figure: Performance of IBBL

a. deposits:
The total deposits of the bank increased sharply from Tk.244292 million at the end of 2009 to Tk. 291935 million at the end of 2010. A graphic presentation of the year wise movement has been given below: (Amount in Million Taka)

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Year Amount

2006 132419

2007 166325

2008 202115

2009 244292

2010 291935

Figure1: Deposits

b.

Investments:

The total investments of the bank increased sharply by 22.26 percent from Tk. 214616 million at the end of 2009 to Tk. 263225 million at the end of 2010. A graphic presentation of the year wise movement has been given below:

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(Amount in Million Taka) Year Amount 2006 113575 2007 144921 2008 180054 2009 214619 2010 263225

Figure2: Investment Comment: Above two figures show that the year to year Deposit, Investment, Remittance, and Foreign exchange is in increasing trend. Total Investment is lower than deposits, because banks keep a certain amount as liquidity to honors day to day payment from year to year it shows that the increasing trend is higher Such as in 2006 to 2007,2007 to 2008 ,2008 to 2009,2009 to 2010 this increasing trend is higher from previous year.So we see that Banks performance in different areas is significantly better.

Mode wise investment of IBBL Panthapath Branch(Amount in Million Taka) Mode 2009 Amount Bai-Murabaha Hire-Purchase 96217 63159 % of total Investment 53.44% 35.01% 2010 Amount 11780 73871 % of total Investment 54.60% 34.42%

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Bai-Muajjal Purchase & Negotiation Quard Bai-Salam Musharaka Total

6350 10223 2151 1719 35 179854

3.64% 5.68% 1.19% 0.95% 0.02% 100%

7318 11289 2833 2082 43 109216

3.41% 5.26% 1.32% 0.97% 0.02% 100%

Mode wise investment as on 31-12-2009

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3.41%

0.97% 0.02% 5.26% 1.32%

Bai-Murabaha Hire Purchasenunder Shirkatul Melk Bai-Muajjal Purchase & Negotiation

34.42%

54.60% Quard Bai-Salam Musharaka

Mode wise investment as on 31-12-2010 Sector Wise Investment through Hire purchase under shirkatul melk of IBBL Panthapath Branch from 2009 to 2010 (Amount in Million Taka) Sector 2009 Amount Industrial Commercial Real Estate Agriculture(Including Investment in fertilizer & Agriculture implements Transport Others Total 99223 51332 10172 9110 % of total Investment 55.11% 28.51% 5.65% 5.06% 2010 Amount 114884 71381 8649 14057 % of total Investment 53.53% 33.26% 4.03% 6.55%

4082 6125 180054

2.27% 3.04% 100%

3520 2125 214616

1.64% 0.99% 100%

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Sector wise Investment position as on 31.12.2009

Sector wise Investment position as on 31.12.2010

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Performance of Hire Purchase under Shirkatul Melk) (Through Questionnaires)

1. In the face to face conversation, I asked both the bank employees & the
customers about the popular products of Hire purchase under shirkatul melk. Their preference of product was same.Percentence of their product preference is given below Product Housing Machinery/Equipment Transport Others Total Percentence(%) 54 20 16 10 100

(Source- Face to Face Conversation to the Employee & Customer)

Pencantence of Popular Product of HPSM

Others Transport 10% 16% Machinery/ Equipment 20%

Housing Machinery/Equipment Housing Transport 54% Others

Comment-From the above figure, we see that housing is the most popular product of
Hire purchase under shirkatul melk.

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2. In the face to face conversation, I asked the bank employees about their satisfaction
with the return from Hire purchase under shirkatul melk.Their comment about that Questions is given below in percentence-

Comment Yes No No comment Total

Percentence(%) 88 2 10 100

Figure- Return from HPSM Source- Face to Face Conversation to the Employee

Return From HPSM

10% 2%

Yes No No comment

88%

Comment-From the above figure, we see that the most of the employee was satisfied
with the return from Hire purchase under shirkatul melk.

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3. In the face to face conversation, I asked the bank employees that which securities or
guarentees they are taken from Customer for HPSM. Their answer about that Question is given below in percentence-

Product Land House/Building Others Total

Percentence(%) 42 40 18 100

Figure-Securities which are taken from customer Source- Face to Face Conversation to the Employee

Securities which Are Taken from Costomer

Others 18%

Land 42%

Land House/Building Others

House/Buil ding 40%

Comment-From the above figure, we see that the most of the employee said that most
of the time they are taken land as a security for Hire purchase under shirkatul melk from customer.

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4. In the face to face conversation with the customer, I asked them about their
satisfaction with the terms & conditions of Hire purchase under shirkatul melk.Their comment about that Questions is given below in percentence-

Comment Yes No No comment Total

Percentence(%) 75 5 20 100

Figure-Satisfaction with the terms & conditions of HPSM Source- Face to Face Conversation to the Customer
Satisfecton With the term & conditions of HPSM

No 5%
Yes

Yes 75%

No commentNo No comment 20%

Comment-From the above figure, we see that the most of the customer was satisfied
with the terms & conditions of Hire purchase under shirkatul melk.

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5. In the face to face conversation with the customer, I asked them that, Does Hire
purchase under shirkatul melk help to improve their living standards .Their comment about that Questions is given below in percentence-

Comment Strongly Agree Agree Disagree Strongly Disagree Total

Percentence(%) 50 35 13 2 100

Figure- HPSM helps to improve living standard Source- Face to Face Conversation to the Customer

HPSM Helps to improve Living Standard Disagree 13% Strongly Disagree 2%

Agree 35%

Strongly Agree Agree Disagree Strongly Agree 50% Strongly Disagree

Comment-From the above figure, we see that the most of the customer was strongly
agree that Hire purchase under shirkatul melk helps to improve their living standard.

5. In the face to face conversation with the customer, I asked them that, Does Bank helps
them in the time of facing problem in their installment payment. Their comment about that Question is given below in percentence

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Comment Yes No No comment Total

Percentence(%) 60 15 25 100

Source- Face to Face

Conversation to the Customer

Bank Helps in the installment payment

Yes No No comment
No comment 25%

No 15%

Yes 60%

Comment-From the above figure, we see that the most of the customer was agree that
bank helps them in the time of facing problem in their installment payment.

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Chapter Six Recommendation & Conclusion

72

RECOMMENDATION
1. Problems regarding improvement of investment through HPSM of IBBL:
From the study I have found the followings findings regarding improvement of investment through HPSM and services to business which are described: Islamic Banking is a new phenomenon in our country during last two decades. So majority of our people have no proper knowledge about the activities of Islamic Banking as well as its investment mechanism and services to customers procedures are more or less similar with traditional Bank. People think that there is no difference between Lease and Hire purchase under shirkatul melk. People think that Private bank is less confidential than nationalized bank to investments well as Hire purchase under shirkatul melk. Most of the people in our country have a bad impression of IBBLs operations regarding indirect generation of interest which meaning no difference between investment of IBBL . IBBL has contract with other bank transaction by without interest thus, it generate low profit . This Bank can't invest in all product or economic sectors through HPSM, which are prohibited by the law of Islam. IBBL has no strong promotional activities to increase investment by motivate present and potential investors Bangladeshi. Absence of Islamic money market, shortage of skilled manpower, lack of regulatory supervisory framework & shortage of link institutions are some of example of constraints for practicing Islamic banking operation.

73

 The Branches of IBBL are facing serious problems of lack of manpower having proper Islamic Banking knowledge due to non existence of appropriate and institutional supply line of Islamic Bankers. Sometimes some investment clients even being Muslims have no Shariah knowledge especially in respect of Riba, Permissible, and Prohibition etc. in financial transaction. It is a fact that without the basic knowledge of Shariah and adherence of the clients to the concepts of Halal and Haram Islamic Banking has become a difficult task. Because of the lack of knowledge about HPSM most of the time bankers do not able to convince the customer about HPSM.

2. Recommendation regarding improvement of investment through HPSM

of IBBL:
After examining the above problems, we found many suggested recommendations regarding improvement of investment and services to customers which are described bellow:

. It is a modern banking era. Each and every commercial Bank is properly utilizing technological innovations. So IBBL needs to utilize these modern technologies to keep peace with the modern time. IBBL needs to recruit skilled human resources which can turn the bank ahead. The bank should advertising very well about HPSM including all information. IBBLs investment processing of HPSM should become easier than other conventional banks. IBBL may make its investment scheme of HPSM more attractive for availing high-return projects. IBBL may consider utilization of rural potentials from both efficiency and equity grounds in the context of the present-day socio-economic conditions of Bangladesh. Strong commitments and stepping up through experiment and implementation of innovative ideas are the appropriate ways to do that.

74

IBBL should deserve immediate attention in the promotion of the image of Shariah based banks as PLS (profit loss sharing) banks. IBBL can diffuse its scope of investment through focusing shariah concept regarding investment among the bank officers; employer and the clients by strong training workshop. IBBL should initiate different investment Schemes of HPSM according to changing /diverse needs of clients. IBBL should more easily their investment policy for the customers /investors because I have seen some Sanctioning difficulties.

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Conclusion:
Islam is complete code of life and Allahs guidance extent into all areas of our lives. Islam has given detail regulations for our economic life. Therefore Islami bank Bangladesh Limited (IBBL) is trying to establish the maximum welfare of the society by maintaining the principle of Islamic Shariah which is based on Quran And Sunnah. Since 1983 IBBL is the pioneer in welfare banking in this subcontinent and it is trying to do all its activities for the betterment of its depositors. For the greater interest of the depositors the investment policy of IBBL is to invest on the basis of profit and loss sharing in accordance with the tents and principles of Islamic Shariah.Profit earning is not the only motive and objective of the banks investment policy rather emphasis is given in Attaining social good and in creation employment opportunities.

IBBL is not secular in its orientation. IBBL does not finance any project which conflict with the moral value system of Islam. IBBL does not strictly consider the credit worthiness of the entrepreneur .IBBL receives a return only if the project succeeds and produces a profit. IBBL consider the soundness of the project and business acumen and managerial competency of the entrepreneur. Therefore, the rate of return of investment of IBBL is greater comparing to that of conventional banks. Finally Islami Bank Bangladesh Limited (IBBL) has been established with a view to conduct interest free banking to establish participatory banking instead of debtor-creditor relationship and finally to establish welfare oriented banking through its investment operations that would lead to a just society. And IBBL have to promote their investment environment, management and operation that I have felt as an internship student. Otherwise Islami Bank Bangladesh Limited cannot reach their Destination properly. Moreover I am really delighted to work in investment section and to see their different modes of investment sanctioning easier Islamic policy.

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Appendix
Questionnaries (For bank Employee only)
Instructions (Request to respondents) Please supply the truth information All information shall be kept strictly confidential Please try to answer all the questions and tick the appropriate box. Name : Address : Designation : Sex : Income (in average) Length of Service:

1. Who are the target customers? I. Who want to buy Apartment II. Who want to buy Transport III. Who want to buy Machinery/Equipment 2. What are the tools of promoting Hire purchase to Customer? Installment Payment Transfer of ownership Jointly purchase 3. Are you satisfy with the return from Hire purchase under Shirkatul Melk? a. Yes b. No c. No comment 4. Which product for Hire Purchase are more popular? Housing Machinery/Equipment Transport Others 5. What are the securities or guarantee taken from customer against Hire Purchase? i. Land ii. House/Building 77

iii.

Others

6. A) Do you face any Defaulter? d. Yes e. No f. No comment B) How you handle the Defaulter? i. Contract with them ii. Help them iii. Others

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Questionnaires (Only For Customer)

Instructions (Request to respondents) Please supply the truth information All information shall be kept strictly confidential Please try to answer all the questions and tick the appropriate box. Name : Address : Sex : Income (in average) : Occupation: 1. What are the products you prefer for Hire Purchase? Housing Machinery/Equipment Transport Others 2. Are the terms & conditions of Hire Purchase comfortable for you? a. Yes b. c. No No comment

3. Do you face any problem regarding the paying the installment? d. Yes e. f. No No comment

4. Does the bank help you in the time of any facing problem regarding the payment? g. Yes h. i. No No comment

5.Hire purchase under shirkatul melk helps to improve your living standard. a. Strongly Agree b. Agree 79

c. d.

Disagree Strongly disagree

6. Are you satisfied with the term services rendered by Hire purchase under shirkatul melk? j. Yes k. l. No No comment

80

BIBLIOGRAPHY
A text book of Banking M. Radashawmi S.V. Vasudevan

Abdallah, A. 1987. Islamic Banking, Journal of Islamic Banking and Finance, January-March, 4(1): 31-56. Abdeen, A.M. and Shook, D.N.. 1984. The Saudi Financial System, J. Wiley and Sons, Chichester. Ali, M and Sarkar, A. A. (1995). Islamic Banking: Principles and Operational Methodology. Annual Report 2005-2010; Islami Bank Bangladesh Ltd Bangladesh Bank guidelines Brochure of Different Accounts of IBBL Islam and Economics Challenges Dr. Umar Chapra

Manual of the bank About HPSM. Md. Habibur Rahman ,Different Investment Modes & Schemes of Panthapath Branch , Investment in charge ,IBBL Md. Nurul Islam Khalifa , Different Investment Modes of IBBL& Difference WITH that of Conventional Banking EVP IBBL DHAKA .( Lecture Synopsis) Principle & practice of Islami Banking Written by Abdur Raquib (Executive Vise President) IBBL, 1st edition, February, 2007. .Text Book on Islamic Banking published by Islamic economics Research Bureau 2nd edition November, 2008. Website of Islami Bank ( WWW.islamibankbd.com )

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LIST OF ABBREVIATIONS USED IN THE REPORT:

ACU-Asian Clearing Union ATM-Automated Teller Machine CAMEL-capital, Assets, Mangement, Earnings and Liquidity CCI&E-Chief Controller of Export& Import CIB- Credit Information Bureau. CRR-Cash Reserve Ratio, DD- Demand Draft EPB-Export Promotion Bureau

EPZ-Export Processing Zone ERC-export Registration Certificate

FSRP- Financial Sector Reform Programmer HPSM- Hire Purchase under Shirkatul Melk. IBIB-International Association Of Islamic Bank ICC- International Chamber of Commerce

LCAF-Letter of Credit Authorization Form

RDS-Rural Development Scheme

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SLR- Statutory Liquidity Reserve SWIFT- Society for world Wide inter Bank Fund Transfer TT- Telegraphic Transfer UCPDC- Uniform Customs & Practice for Documentary Credit WTO-World Trade Organization

83

84