Shariah Based Islami Banking System

1. Introduction:

From the very beginning of commercial activities, business has been one of the key activities to generate
income. The starting was with barter method and now a day up to service and information selling. To
make it easier for the buyer and the seller banks have started their activities all over the world. A bank is
an institution that borrows money from the surplus of the society and lends that money to the deficit unit
for earning some interests. But Islam does not allow any Muslim to invest or earn money on the basis of
interest (Riba). It is strictly forbidden by Allah according to Quran and Sunnah. So every sort of transaction
must be free from Riba. But as a matter of fact all over the world it is a general practice and a featured
service for the banks to compete. The subscribers also go for the banks providing more interests against
their investments. In this scenario coming up with a new idea called “Shariah based banking system”,
implementing the idea and surviving in this competitive commerce based world is really a brave approach.

2. Background of the industry:

An Islam Bank is a financial institution that operates with the objective to implement and materialize the
economic and financial principles of Islam in the banking area.

According to the Organization of Islamic Conference (OIC), “An Islamic Bank is a financial institution whose
statutes, rules and regulations expressly state its commitment to the principles of Islamic Shariah and to
the banning of the receipt and payment of interest on any of its operation.”

Banking plays an important role in the economy of any country. Bangladesh is the third largest Muslim
country in the world with around 150 million populations of which about 90 percent are Muslim. These
people possess strong faith on Allah and they want to lead their lives as per the construction given in the
holy Quran and the way shown by the prophet Hazrat Mohammad (Sm). But Islamic banking system was
developed here up to 1983 was centered to interest, which strongly prohibited repeatedly in Islam. This
interest based banking system had been in action right from the British colonial period and employment
of the Muslims in banks was more or less restricted. During the period 1947-1971 when country was a
part of Pakistan but the rulers did not take any practical attempt to establish economic system based on
Islamic Principles.
Since independence, Bangladesh saw a new trend in banking both at home and abroad. Islamic banking
as a new paradigm started in Bangladesh in 1983 with the establishment of the first Islamic bank “Islami
Bank Bangladesh Limited”. The innovation of interest-free banking systems, proved its worth in the
country’s money market and many new banks have been established to operate in compliance with
Shari’ah and many traditional banks have opened their Islamic banking branches.

3. Financing Product of Shariah Based Bank:

Types of Deposits:

Among different types of deposits of the Islamic Banking industry, Mudaraba Term Deposits secured the
highest position (48.13%) [chart-2] followed by Mudaraba Savings Deposits (MSD) (18.24%), Special
Scheme Deposit (9.26%), Mudaraba Special Savings pension/profit) Deposits (9.04%), Other deposits
(7.00%), Current Account Deposits (4.47%), Mudaraba Special Notice Deposits (3.27%), Mudaraba Savings
Bond (0.97%) etc.

Al-Wadeea

Deposits Deposits 7.00%

4.47% Mudaraba

9.26% 18.24%

Mudaraba

0.05% Deposits
3.27%
Mudaraba
Mudaraba

0.97%
Deposits)
9.04% 0.18%

4. Investing product of Shariah Based Bank:

Total amount of investments in Islamic Banking industry reached at Tk. 156619.90 crores at the
end of the quarter April-June 2016. During the quarter under review, investments increased by
4.84% and 19.47% respectively as compared to the previous quarter and the corresponding
quarter of the preceding year. The share of total Investment of Islamic banks accounted for
23.53% among all banks.
Among total investments of Islami banks, 95.37% were made by 8 full-fledged Islamic banks,
2.87% by the scheduled banks’ Islamic banking branches and the rest 1.76% by the scheduled
banks’ Islamic banking windows. As in the case of deposits, Islami Bank Bangladesh Ltd. attained
the highest share in investments which was 36.38% at the end of the quarter April-June 2016,
(chart-3). The share of
investments made by other Islamic banks included EXIM Bank Ltd. (13.09%), First Security Islami
Bank Ltd (13.05%), Al Arafah Islami Bank Ltd. (11.85%), Social Islami Bank Ltd (9.58%), Shahjalal
Islami Bank (7.02%), Union Bank (3.80%), Islami banking branches (2.87%), Islami banking
windows (1.76%) and ICB Islami Bank Ltd (0.59%).

1.76%

11.85%

Sector-wise Investments:
After analyzing the sector- wise investment, it can be observed that investment in the MSME
(Micro, Small and Medium Enterprises) sector was the highest among all sectors which stood at
29.49% (chart-4) at the end of the quarter April-June 2016. The next position was occupied by
Business & Trade sector (27.00%)
followed by Industrial sector (23.92%), others (8.77%), Real Estate (7.08%), Transportation
(1.53%), Agriculture (1.46%), Electricity, Gas and Water supply (0.65%) and Poverty Alleviation
(0.10%).
 1.46%
0.10%

0.65%

Trade & Business

27.00%

7.08%
1.53%

5. Marketing and Promotional Strategy of Shariah Based Islami Banking System

Marketing strategy refers to the marketing goals and action plans that address matters of product/
service price, distribution, communication, and the process of new product development. The
adaptation of any strategy depends much on factors such as management style and experience of the
top management, age of the institution, economic environment, and regulations.

Since customers purchase the products and services to satisfy their needs and wants, Islamic banks
have to understand the nature of these needs and want in order to appreciate the kind benefits
customers expect to receive. Banks should give more attention to the benefits it creates for the users
when marketing a product or a service. Since Islamic banking is an alternative to conventional banking,
Islamic banks needs to innovative in terms of products and services. Only through innovation in
products and services can Islamic banks sustain their competitive advantage against other
conventional or foreign banks that offer similar Shariah compliance facilities.

Promotion Strategy

Promotion is the function of informing, persuading, and influencing the customer’s decision process.
Usually the bank’s marketing manager will respond to the goals and objectives of the bank by
formulating various elements of the promotional strategy.
Some of Promotional Activities of Shariah Based Islami Banking System

Training services:

1. International: Training to Foreigners on Islamic Banking

2. National: Training to others on Islamic Banking

3. Islamic Banking Diploma.

Besides, orientation, induction, foundation and motivation courses on different subjects are also
conducted round the year. In addition to conducting regular training courses, it arranges seminar on
Islamic economics and banking and such other related topics of current interest.

Apart from this, an "Executive Development Programmer" has been introduced at the Head Office of
the Bank in Dhaka since 1988 for enriching knowledge and thought process and developing
professional skill of the Executives. This programmer has proved to be effective and now being
extended outside Dhaka. The Academy is also publishing a journal named "Journal of Islamic
Economics, Banking and Finance" regularly.

6. Conclusion

As Bangladesh is a developing country, so without developing banking sectors it’s not possible to
progress rapidly with the business sector of this country. Islami economy and banking are bound
together. This economy and banking is not possible to establish without Tauhid, Resalat and trust of
Akhirat. Bangladesh is a muslim majority federation, banking is a system that is linked all over the
world. So for a new banking scheme with different terms is always tough to get a position in the
market and emerge with success. IBBL not only has dared facing all the obstacles but also managed
to establish this system with great success. This bank has established the fact that it is possible for
banks to operate their activities according to the rules and regulations of Islami Shariah. Islam is a
religion for human welfare as well the social welfare. All the steps of Islam are only for the welfare for
human being. So we can clearly state that Islami bank has emerged as a blessing for people and
implementing a shariah based banking system has been a very brave approach.