Function, Performance & significant role of Islami Bank Bangladesh Limited
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This document summarizes the acknowledgements and authors of a project paper on Islami Bank Bangladesh Limited (IBBL). It thanks the course instructor and faculty for their guidance and support throughout the project. It also thanks the authors' parents and friends for their assistance in finalizing the project within the timeframe. The authors are identified as Moin Sarker and Melon Fakir.
![Earning Foreign Remittance: Remittances by migrant workers’ play a vital role in the economies of many labor-
exporting countries. Remittances help in macroeconomic development process in the home country as it provides
significant sources of foreign currency, increase national income, finance imports and contribute to improve the balance
of payment situation. Demand for migrant workers’ remittances to Bangladesh has now increased tremendously. During
FY 2010-11, remittance inflow to Bangladesh was 82,992 crore taka (US $11.53 billion). Because of clients’ confidence
on the IBBL’s remittance management, it claimed 28% market share helping Bangladesh economy to become healthier.
Strengthening Rural Economy: To make the rural poor self-reliant, IBBL has initiated Rural Development Scheme
(RDS). During FY 2010, RDS performance became better than ever, which is operating in 12,000 villages, 21,000
centre’s, among more than 500,000 members and will expand to all over the Bangladesh in the coming years [34]. The
amount of cumulative disbursement through this Scheme stood at Tk. 3,184 crore (US $400 million), up to December
2010. Through RDS, IBBL operates Humanitarian Assistance Program, Education Program, Capacity Building Program
and Health & Medicare Program. A study conducted by Rahman, Jafrullah and Islam analyzed many facets of the RDS
and they conclude that IBBL’s RDS is a successful project. They also identified that household income and expenditure of
the RDS participants had increased significantly and clients had a positive opinion towards this micro investment program
as it improved their overall standards of living.
Role in Promoting Ecology and Green Banking: Green Banking is known as ethical, social or sustainable banking
concerned with the social and environmental impacts of its IIUC Studies, Vol. 9 330 investments and loans. A truly green
bank will reduce its carbon footprint by building more efficient premises, branches, implementing more efficient
operational procedures promoting sustainable banking and increasing their investments in environment-sensitive
industries. IBBL insists on going green to help the environment by promoting its Online Banking, Mobile Banking or the
idea of socially responsible investment funds for sustainable/ eco-friendly project finance. IBBL’s Green Banking
practices are connected with both internal operation and product ecology. Referring to its green banking initiatives,
Hassan and Latif express that Islamic banks can develop Islamic financial products (such as green product), which will
contribute to the environment, such as energy efficiency finance or leasing of environmental technology.
Country’s Industrialization: As per investment policy of IBBL, top priority has been given towards the industrial
development of the country. The bank’s Investment portfolio is gradually being increased towards industrial finance along
with commercial investment. IBBL's investment in industrial sector is substantially higher compared with those of other
commercial Banks. Total investment for projects finance together with working capital stood at Tk.14,911 crore as on
31st December 2010 as against Tk.11,488 crore as on 31st December 2009 resulting in 29.80% growth. IBBL has
invested in a wide range of businesses including in textile & garments, steel & engineering, agro based industries, food &
beverage, poultry & hatchery, chemical & petroleum, printing & packaging, plastics & ceramics and hotels & restaurants.
A study by Alam supports the above notion.
Development of SMEs: The role of Small and Medium Enterprises (SMEs) is indispensable for overall economic
development of a country particularly for developing countries like Bangladesh. Since this sector is labor intensive,
effective utilization of this sector can help increase national income, rapid employment generation, achieving Millennium
Development Goals (MDGs), eradicate extreme poverty and hunger, gender equality and women empowerment.](https://image.slidesharecdn.com/1-160411153520/85/Function-Performance-significant-role-of-Islami-Bank-Bangladesh-Limited-7-320.jpg)
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Function, Performance & significant role of Islami Bank Bangladesh Limited
- 1. Acknowledgement We express our sincere thanks to our Course Instructor, Priyanka Das Dona madam, and faculty department of Business Administration, for guiding us right from the inception till the completion of the project. We sincerely acknowledge her for extending valuable guidance, support for literature, critical reviews of project and above all the moral support she had provided to us with all stages of this project. We would also like to thank our parents and friends for their support and who helped us a lot in finalizing this project within the limited time frame. MOIN SARKER (ID – 2534) MELON FAKIR (ID - 2537)
- 2. -Table of Content- Topics Page no Introduction 01 Objectives 01 Methodology 01 Overview of Islami Bank Bangladesh Limited 02 Function of Islami Bank Bangladesh Limited 05 Performance 08 Significance 10 Findings 12 Recommendation 12 Summery & Conclusion 12 Reference 13
- 3. INTRODUCTION This paper presents the role/factions, Performance, and significance of Islami Bank Bangladesh Limited (IBBL) to the recent economic development in Bangladesh. This study identifies IBBL’s significant contribution to the national exchequer. This paper contributes to the field of economic development of Bangladesh and the role of IBBL behind it and fills the gap of literature in this specific area. OBJECTIVES This study is doing for understanding the factions of a commercial bank which expanding their business all over the Bangladesh. Not only understand the functions of commercial bank but also the role and significance of commercial bank in Bangladesh economy. After completing this study we know in detailed about Islami bank Bangladesh ltd and it’s factions, performance and significance activities’ through the economy. METHODOLOGY The study analyses published texts, articles, websites and annual report of this bank through a content analysis. Key findings of this study manifest the contribution of this bank in different areas of economic development in Bangladesh like generating employment, earning foreign remittance, strengthening rural economy, promoting ecology and green banking, boosting industrialization, developing the SMEs, assisting in foreign trade (import-export), developing the housing sector etc. For the purpose of this study, Content Analysis has been considered as the most appropriate research method. Content analysis is a method used to record the extent and issues of different contents like relevant materials and documents. To understand IBBL in Bangladesh economy, we explored the contents of the ‘Annual Report– 2010-2014’ of the bank including relevant articles, books, periodicals and websites. Content Analysis engages the identification of particular issue within the texts, which can be classified under headings, and then analyzed. Conducting a content analysis in the current study involves the following steps: choosing the documents to analyze, selecting the categories/sections within the annual report/manuals/documents and measuring the reliability of data/information. For making this assignment we are much-ly dependent on secondary data.
- 4. OVERVIEW OF THE ISLAMI BANK BANGLADESHLIMITED Islami Bank Bangladesh Limited is a Joint Venture Public Limited Company engaged in commercial banking business based on Islamic Shari'ah with 63.09% foreign shareholding having largest branch network ( total 304 Branches) among the private sector Banks in Bangladesh. It was established on the 13th March 1983 as the first Islamic Bank in the South East Asia. It is listed with Dhaka Stock Exchange Ltd. and Chittagong Stock Exchange Ltd. Authorized Capital of the Bank is Tk. 20,000.00 Million and Paid-up Capital is Tk. 16,099.90 Million having 33,686 shareholders as on 31st December 2014. 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, achieve balanced growth and equitable development in through diversified investment operations particularly in the priority sectors and less developed areas of the country. To encourage socio- economic up liftmen and financial services to the loss-income community particularly in the rural areas. Our vision is to always strive to achieve superior financial performance, be considered a leading Islamic Bank by reputation and performance. Our goal is to establish and maintain the modern banking techniques, to ensure soundness and development of the financial system based on Islamic principles and to become the strong and efficient organization with highly motivated professional, working for the benefit of people, based upon accountability, 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 lead to higher employment. Strategic Objectives To ensure customers' satisfaction. To ensure welfare oriented banking. To establish a set of managerial succession and adopting technological changes to ensure successful development of an Islamic Bank as a stable financial institution. To prioritize the clients welfare. To emerge as a healthier & stronger bank at the top of the banking sector and continue stable positions in ratings, based on the volume of quality assets. To ensure diversification by Sector, Size, Economic purpose & geographical location wise Investment and expansion need based Retail and SME/Women entrepreneur financing. To invest in the thrust and priority sectors of the economy.
- 5. To strive hard to become an employer of choice and nurturing & developing talent in a performance-driven culture. To pay more importance in human resources as well as financial capital. To ensure lucrative career path,attractive facilities and excellent working environment. To ensure zero tolerance on negligence in compliance issues both sharia’h and regulatory issues. To train & develop human resources continuously & provide adequate logistics to satisfy customers’ need. To be excellent in serving the cause of least developed community and area. To motivate team members to take the ownership of every job. To ensure development of devoted and satisfied human resources. To encourage sound and pro-active future generation. To achieve global standard. To strengthen corporate culture. To ensure Corporate Social Responsibilities (CSR) through all activities. To promote using solar energy and green banking culture and ecological balancing. Core Values Trust in Almighty Allah Strict observance of Islamic Shari’ah Highest standard of Honesty, Integrity & Morale Welfare Banking Equity and Justice Environmental Consciousness Personalized Service Adoption of Changed Technology Proper Delegation, Transparency & Accountability Commitments To Shariah
- 6. To the Regulators To the Shareholders To the Community To the Customers To the Employees To other stakeholders & To Environment. Functions of IBBL Employment Creation: IBBL has significantly contributed in the employment generation in Bangladesh. The bank has employed over 10,000 people directly and a Economic Development of Bangladesh: The Role of IBBL 329 few millions indirectly through financing in businesses including import-export, industrialization, SME financing and rural development projects. So, it can be apprehended that millions of families are directly and indirectly benefited from IBBL and these families are also contributing in Bangladesh economy in various ways. According to Rashid, Hasan and Ahmad, Islami Banks along with IBBL are providing satisfactory community service through job creation and ensuring consistency in service provisions.
- 7. Earning Foreign Remittance: Remittances by migrant workers’ play a vital role in the economies of many labor- exporting countries. Remittances help in macroeconomic development process in the home country as it provides significant sources of foreign currency, increase national income, finance imports and contribute to improve the balance of payment situation. Demand for migrant workers’ remittances to Bangladesh has now increased tremendously. During FY 2010-11, remittance inflow to Bangladesh was 82,992 crore taka (US $11.53 billion). Because of clients’ confidence on the IBBL’s remittance management, it claimed 28% market share helping Bangladesh economy to become healthier. Strengthening Rural Economy: To make the rural poor self-reliant, IBBL has initiated Rural Development Scheme (RDS). During FY 2010, RDS performance became better than ever, which is operating in 12,000 villages, 21,000 centre’s, among more than 500,000 members and will expand to all over the Bangladesh in the coming years [34]. The amount of cumulative disbursement through this Scheme stood at Tk. 3,184 crore (US $400 million), up to December 2010. Through RDS, IBBL operates Humanitarian Assistance Program, Education Program, Capacity Building Program and Health & Medicare Program. A study conducted by Rahman, Jafrullah and Islam analyzed many facets of the RDS and they conclude that IBBL’s RDS is a successful project. They also identified that household income and expenditure of the RDS participants had increased significantly and clients had a positive opinion towards this micro investment program as it improved their overall standards of living. Role in Promoting Ecology and Green Banking: Green Banking is known as ethical, social or sustainable banking concerned with the social and environmental impacts of its IIUC Studies, Vol. 9 330 investments and loans. A truly green bank will reduce its carbon footprint by building more efficient premises, branches, implementing more efficient operational procedures promoting sustainable banking and increasing their investments in environment-sensitive industries. IBBL insists on going green to help the environment by promoting its Online Banking, Mobile Banking or the idea of socially responsible investment funds for sustainable/ eco-friendly project finance. IBBL’s Green Banking practices are connected with both internal operation and product ecology. Referring to its green banking initiatives, Hassan and Latif express that Islamic banks can develop Islamic financial products (such as green product), which will contribute to the environment, such as energy efficiency finance or leasing of environmental technology. Country’s Industrialization: As per investment policy of IBBL, top priority has been given towards the industrial development of the country. The bank’s Investment portfolio is gradually being increased towards industrial finance along with commercial investment. IBBL's investment in industrial sector is substantially higher compared with those of other commercial Banks. Total investment for projects finance together with working capital stood at Tk.14,911 crore as on 31st December 2010 as against Tk.11,488 crore as on 31st December 2009 resulting in 29.80% growth. IBBL has invested in a wide range of businesses including in textile & garments, steel & engineering, agro based industries, food & beverage, poultry & hatchery, chemical & petroleum, printing & packaging, plastics & ceramics and hotels & restaurants. A study by Alam supports the above notion. Development of SMEs: The role of Small and Medium Enterprises (SMEs) is indispensable for overall economic development of a country particularly for developing countries like Bangladesh. Since this sector is labor intensive, effective utilization of this sector can help increase national income, rapid employment generation, achieving Millennium Development Goals (MDGs), eradicate extreme poverty and hunger, gender equality and women empowerment.
- 8. Considering the potential of the SMEs, IBBL has given due importance in the development of this sector. For example, total SME investment of IBBL reached to Tk. 78,456 crore (US $11 billion) during 2010 which was 37.26% higher compared to Tk. 57,159 crore (US $8 billion) during 2009. A study by Hamid Economic Development of Bangladesh: The Role of IBBL 331 reveals that IBBL provides the idea about how small entrepreneurs can be developed through an Islamic way. International Trade: IBBL plays significant role in the Bangladesh’s international trade. IBBL is helping the economy by providing assistance in importing raw materials on one hand; helping the export businesses and earning foreign currencies for Bangladesh, on the other. Import: During the year 2010, IBBL opened 46,736 import L/C for Tk.24,628 crore against 38,717 L/C for Tk. 16,123 crore in 2009 showing 53% growth in amount. Major items of import were raw cotton, yarn, fabrics, capital machinery, fertilizer, metal, motor vehicle, chemicals, edible oil, rice, scrap ship etc. Export: During the year 2010, IBBL handled 46,699 export bills for Tk.14,842 crore against 44,291 export bills for Tk. 10,642 crore in 2009 showing 39.46% growth in amount. Major export financed items were readymade garments, frozen foods & vegetables, jute & jute goods etc. Housing Investment scheme: IBBL has taken massive initiative to invest under the Housing Investment Scheme for the eligible citizens in the major metropolitan cities. With limited income, upper middle class and middle class can take the advantage of this program. This program is popularly known as Hire Purchase under Shirkatul Melk. Investment through this mode is solving accommodation problems in the major cities and at the same time contributing to the economy through a wide range of backyard linkage industries including rod, cement, wood, tiles & fittings, equipment as well as employs a large number of construction related staff. Contribution to the National Exchequer: IBBL has been able to contribute huge amount to the government exchequer as income tax out of its profit. The bank paid the highest tax to the Govt. in the banking sector by paying corporate tax Taka 411 crore (US $57 million) in the year 2010 and Taka 325.32 crore (US $45 million) in the year 2009. This revenue income is significant for Bangladesh government compared to its total review income, which is an indicator for the economic development of the country. Social welfare activities & functions: Islami Bank Bangladesh Limited is dedicated itself towards the welfare of society. It has formed a separate foundation named Islami Bank Foundation with a fund of Taka 38.00 million in order to conduct social-welfare activities on a broad scale. Since then, Islami Bank Foundation is carrying the social welfare, education, health and Medicare activities on behalf of Islami Bank Bangladesh Limited (IBBL). The social welfare projects of Islami Bank Foundation includes Islami Bank Hospitals Islami Bank Medical College, Rajshahi Community Hospitals Monoram: Islami Bank Crafts & Fashion Houses
- 9. Service Centers Islami Bank Institutes of Technology Islami Bank International School and College Islami Bank Physiotherapy and Disabled Rehabilitation Centre Centre for Development Dialogue Bangladesh Sangskritic Kendra (Cultural Centre) Performance Source: Annual Report of IBBL from 2012-2014
- 10. In this graph chart we notice that profit is continuously decries on against of recent past. The bank activities indicate they are not more concern about their profit. If they really concern about this the profit will increase these years but graph shows that the profit of 2014 decries a big amount than 2012. As per Mudaraba principle, agreement between the Mudaraba depositors and the Bank, the Mudaraba depositors are entitled to get minimum 65% of the investment income earned through deployment of Mudaraba Fund as per weightage assigned to each type of Mudaraba deposit. In the year 2014, IBBL paid 71.48% of Investment Income earned through deployment of Mudaraba Fund. In some Mudaraba Deposits, additional rate was allowed over the rate derived as per weightage. Mudaraba Depositors do not share any income derived from various banking services where the their fund is not involved and any income derived from Investing Bank’s Equity and other Cost Free Fund. Al-Wadeeah Depositors do not share any income of the Bank. Profit is paid/provided to Mudaraba Deposit accounts at provisional rate on half-yearly/yearly/anniversary basis considering overall projected growth, performance and profitability of the Bank during the year. Final Rates of profit of any accounting year are declared after finalization of Shari’ah Inspection report and certifying the Investment Income of the Bank by the statutory auditors.
- 11. Significance Islami Bank Bangladesh Limited introduced unconventional way of banking business in the country. It started its operation in 1983 and ended the initial year of operation with a total deposit of Tk 14.41 crore. The deposit amount rose to Tk 3533.44 crore on June 30, 2001 registering a substantial growth. The investment portfolio of the bank is extended at 2.50 per cent for agriculture and rural investment, 18 per cent for industrial term investment, 13 per cent for industrial working capital, 10 per cent for housing and real estate, 4 per cent for transport and communication, 0.05 per cent for electricity, gas, water and sanitation services, 2 per cent for storage,43 per cent for import, export and local trade and trade related activities, 1 'per cent for poultry and dairy, 2 percent for rural development scheme, 2.50 per cent for other special schemes, 0.50 per cent for micro-industry and one per cent for other productive purposes. The overall recovery rate of the bank is 93 per cent. Islami Bank has introduced small business schemes micro industries finance, under the bank finances projects with limit upto Tk 30,000. Islami Bank functions in a market where interest based conventional form of banking covers about 90 per cent of the banking sector. Islami Bank works with the concept of interest-free banking and it has proved that the new banking with interest free concept could be successfuland expanded in the country. The Bank introduced projects like Rural Development Scheme, an investment project that conforms to social responsibility for the downtrodden in rural areas as its prime priority. The Rural Development Scheme has been designed to help improve the living standard of people, particularly the women in rural areas. The Rural Development Scheme is an unprecedented success in social upliftment by means of empowering the downtrodden through economic emancipation. The bank uses depositors' funds in interest-free ways in rural areas where downtrodden people are susceptible to several evil designs of interest groups. About 86 thousand people in rural areas, 90 per cent of whom are women, are now being covered under the Rural Development Project. Among them, about 72 thousand have already fully adjusted the disbursed fund. The recovery rate is about 99.7 per cent. The bank disburses Tk 3000-15,000 under the project per person. More than Tk 90 crore have been disbursed so far under the Rural Development Scheme. The project is now being operated in about 2200 villages in 45 districts through 21 branches. The bank is planning to open some new branches in rural areas to add further pace to its Rural Development Scheme. The scheme allows investment in production of 21 various agro and agro-related products, food, cereal and cash crops, off- farm activities like dairy, cow fattening, goat rearing, poultry, shop keeping, peddling, rural transport like, rickshaw, rickshaw-van, cart etc,irrigation equipment, hand tube-well, housing materials etc.
- 12. The bank has a subsidiary, the Islami Bank Foundation. The Foundation is engaged in social welfare activities, side by side taking care of the requirement of sanitation, medicare and education of the villages through integrated area development approach. The other schemes of the bank include housing investment scheme, car investments, investment for doctors, small business schemes, agriculture implements investment scheme, silk weavers investment schemes, micro industries investment scheme etc. The bank is determined to practice Islamic banking which is an alternative to conventional banking. It prefers investing in productive initiatives by best utilization of people's savings. But Murabaha, title being pledged with the bank and Bai Muazzal, title being pledged with the client under hypothecation are the two major modes of Islamic banking. About 41 percent and 21 per cent of the Islami Bank's total investment portfolio are invested in those modes respectively. The bank achieved successes in mobilizing deposits and distributing profits. The management of the bank maintains that there is still tremendous potential of expanding Islamic Banking in the country. It has already established that banking without interest is feasible in the country. The bank now expects to contribute to the development of an Islamic Money Market in the country. Findings 01.Though IBBL is playing significant role in developing Bangladesh economy, but all relevant data could not be procured from the relevant IIUC Studies, Vol. 9 332 industries, who were financed by IBBL and contributed to the Bangladesh economy as well. Authors could do more in-depth study, if they had more time to work on this project. 02. Profit is decreasing day to day. Profit amount should not match with of increasing compare than 2013 and 2012. 03. Managemnt was not concern about negative word of mouth or negative buzz-marketing. It may causes less profit. 04. IBBL not care much or not directly operate their Social activities. 05. Now a day’s Islami bank Bangladesh limited is more concern about women empowerment. Recommendations: IBBL should be concern about their profit IBBL should take actions against negative word of mouth IBBL should develop their online banking system by that clients of the bank are more likely do their banking activities. IBBL should expand their banking all over the county , and their branches for more customer engagement.
- 13. Summary and Conclusion: IBBL is one of the fastest growing and best performing banks in Bangladesh. Because of its excellent teamwork among the top management, staff, borrowers, depositors and other stakeholders as well as outstanding banking performance, this bank has secured a very strong position in Bangladesh banking sector. IBBL has invested in a wide range of areas that not only reduced the risk of investment, but also providing services to a large number of Bangladeshis in home and abroad. This study has portrayed clear a picture of IBBL’s role in the economic development of Bangladesh. If this trend remains continued, IBBL’s contribution will make significant impact on the social and environmental issues in the near future, in addition to the economic wellbeing of the country. Reference 1. The New Nation - Features. 2. http://www.bangla2000.com/BusinessWorld/Features/Aug2001/eng_feature_detail02.shtm 3. http://www.islamibankbd.com/abtIBBL/abtIBBLCorpInfo.php 4. http://www.islamibankbd.com/index.php 5. http://www.islamibankbd.com/abtIBBL/abtIBBLAtaGlance.php 6. https://en.wikipedia.org/wiki/Islami_Bank_Bangladesh_Ltd 7. AHMAN, AUF. and HASSAN, K. (2001), ‘Regulation and Performance of Islamic Banking in Bangladesh’, Thunderbird International Business Review, vol. 49, no. 2, pp. 251- 277 8. WOELFEL, C. (1993), Encyclopedia of Banking and Finance, Columbus, OH:McGraw-Hill Publishing 9. KANE, M. and SAND, P. (1998), Economic Development: What Works at the Local Level, Washington DC: National League of Cities 10. CAMERON, R. (1972), Banking and Economic Development: some lesson of history, Oxford: Oxford University Press 11. MOLLA, R.I., MOTEN, R.A., GASAU, S.A. and GWANDU, A.A. (1988), Frontiers and Mechanics of Islamic Economics, University of Sokoto: Sokoto 12. SARKAR, A.A. (1999), ‘Islamic Banking in Bangladesh: Performance, Problems & Prospects’, International Journal of Islamic Financial Services, vol.1, no. 3 13. HASAN, K. (1999), ‘Islamic Banking in Theory and Practice: The Experience of Bangladesh’, Managerial Finance, vol. 25, no. pp. 60-113 14. RAHMAN, M., JAFRULLAH, M. and ISLAM, ANM. (2008), ‘Rural Development Scheme of Islami Bank Bangladesh Limited (IBBL): Assessment and IIUC Studies, Vol. 9 334 Challenges’, IIUM Journal of Economics and Management, vol. 16, no. 2, pp. 139-163 15. Islami Bank Bangladesh Limited (2011), Annual Report 2011, Dhaka: IBBL
- 14. 16. HAMAN, MA. (2005), ‘The Role of Islamic Bank in the Development of Small Entrepreneurs’, Journal of Islamic Economics and Finance, vol. 1, no. 1.
- 15. COURSE: MONEY & BANKING Function, Performance &its significant role of Islami Bank Bangladesh Limited WorldUniversityofBangladesh SUBMITTED BY MOIN SARKER (ID-2534) MELON FAKIR (ID-2537) BATCH 42/C MAJOR IN MARKETING SUBMITTED TO PRIYANKA DAS DONA SENIOR LECTURER DEPT. OF BUSINESS ADMINSTRATION