-Nazneen Fatema-Lecturer in Finance-IIUC, DC

• Presented ByGroup –KRONE

1. Athya sanjida (B121912)

DHAKA campus

To know about ISLAMIC BANKING.

To know whether Islamic Banking will be beneficial for the country in future.

To know about Islamic mode of financing.

To know about development and growth in Islamic Banking.

To know whether Islamic Banking will be beneficial for the customer in future

Islamic Banking (IB)• Islamic banking can be defined as: a form of

modern banking based on Islamic legal concepts using risk- sharing as its main method excluding financing based on fixed pre- determined return.

The purpose of the Islamic financial system:

• The purpose of the Islamic financial system is, as with conventional finance, to mobilize global resources to promote and sustain global and regional development.

• Islamic Finance taps the vast pool of savings held by Muslims, and puts these savings to productive use for the benefit of Islamic and other societies.

Murabaha (Mark-Up On Sales): In an Islamic mortgage transaction, instead of loaning the buyer money to purchase the item, a bank might buy the item itself from the seller, and re-sell it to the buyer at a profit, while allowing the buyer to pay the bank in installments.

Musharaka (Partnership): Musharakah is a relationship between two parties or more that contribute capital to a business and divide the net profit and loss pro rata. Musharaka may take two forms-

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Permanent Musharaka.

Diminishing Musharaka.

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Mudarabah (Profit & Loss Sharing): A profit & loss sharing contract, with one party providing 100 per cent of the capital and the other party (the mudarib) providing its expertise & labor. Profits distributed according to a predetermined ratio, but cannot be guaranteed and Losses are barred by the provider of capital.

Ijaara & Ijara-wa-iqtina (Leasing & Hire purchase): Ijarah means lease, rent or wage. Generally, the Ijarah concept refers to selling the benefit of use or service for a fixed price or wage. On the other hand, it’s the same contract but the customer is allowed to buy back the item when the contract ends.

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Bai'salam;

This is a sale of goods whose specifications are determined at the time of the contract, for a cash price paid in advance, and whose delivery will be at a future date.

The seller of the goods must make delivery of the goods of determined specification on a definite future due date. The goods need not be already manufactured at the time of the sale contract.

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Performance Analysis:

Name of the Bank

Profitability Model, ROA:

2010 2011 2012 2013 2014Average

First Security Islami Bank

Ltd.0.11% 0.33% 0.68%

0.86%

0.64%

0.53%

Social Islami Bank Ltd. 0.61% 0.68% 1.08%

1.17%

1.28%

0.96%

Al-Arafah Islami Bank

Ltd.1.63% 1.80% 1.77%

2.55%

1.71%

1.89%

Islami Bank Bangladesh

Ltd.1.14% 1.16% 1.22%

1.35%

1.63%

1.30%

Shahjalal Islami Bank

Ltd.2.28% 1.81% 1.82%

2.63%

1.09%

1.93%

ROA = Net Income X 100Total Assets

Here ROA (Return on Asset), ROE (Return on Equity), and profit margin is used to find out the profitability. And Investment income, Investment expense, deposit, loans and advance, non performing investment is used to find the banks performance.

ROA: Return on asset determines the amount of net income produced on a firm’s asset by relating net income to total Asset.

Profitability Model, ROA

Profitability Model, ROE:

 Year

2010 2011 2012 2013 2014 Average

First Security

Islami Bank Ltd.

2.70% 4.11% 11.41%

13.99% 12.89% 9.02%

Social Islami

Bank Ltd.9.01% 10.82

%12.14

%15.31

% 11.51% 11.76%

Al-Arafah Islami

Bank Ltd.

22.60%

24.70%

24.10%

24.55% 18.47% 22.88%

Islami Bank

Bangladesh Lt.d

17.92%

19.02%

16.93%

19.00% 6.72% 15.92%

Shahjalal Islami

Bank Ltd.

23.21%

22.68%

21.73%

30.71% 14.76% 22.62%

ROE: The amount of net income returned as a percentage of shareholders equity. Return on equity measures a corporation's profitability by revealing how much profit a company generates with the money shareholders have invested.

ROE =Net Income

X 100Total Equity

Net Profit Margin: Net Profit Margin measures the net income of a firm as a percent of its revenue.

Net Profit Margin = Net Income X 100Net Operating Income

Name of the Bank

Year

2010 2011 2012 2013 2014 Average

First Security

Islami Bank Ltd.

7.39% 18.21% 24.62% 26.31% 21.21% 19.55%

Social Islami

Bank Ltd.

16.62% 15.64% 25.12% 24.42% 26.13% 21.59%

Al-Arafah Islami

Bank Ltd.

28.01% 30.76% 32.56% 42.77% 34.58% 33.73%

Islami Bank

Bangladesh Ltd.

19.55% 23.07% 27.61% 28.51% 61.35% 32.02%

Shahjalal Islami

Bank Ltd.

39.72% 35.20% 36.70% 42.72% 25.23% 35.92%

RURAL DEVELOPMENT SCHEME OF Eight Islami Banks:

• All the Eight Islami Bank in Bangladesh envisages an economic system based on equity and

justice. Taking into consideration that the majority of the population below poverty line lives in rural

Bangladesh, the Bank has devised a "Rural Development Scheme (RDS)" with a view to creating

employment opportunity for them and alleviates their poverty through income generation activities.

• The IBBL through its RDS project has been implementing integrated programs for the landless

poor, wage laborers and marginal farmers aimed at meeting their basic needs and promoting their

comprehensive development.

• In order to consolidate their economic base, invested money should be used in income generating

activities so the poorer section of the population can become self-reliant. RDS works for the

realization of that objective.

Goals and ObjectivesThe followings are the important objectives of Rural Development Scheme:

To bring the poorer population within an organizational framework by setting up certain rules and

regulations with a view to free them from the curse of poverty and make them self-reliant, thereby

converting RDS into a self-reliant sustainable program;

To extend bank investment to agricultural and non-agricultural sectors in the rural areas;

To provide self-employment for distressed people;

Socio-economic development of the poor and distressed by group/center formation;

To bring both male and female to provide employment under income generation activities and help them to

attain self-reliance step by step;

To continue to support the self-reliance drive of the poor in their search of capital formation from savings

they make out of their increased income;

To help reduce and eventually stop, through enhancement of their income, the lending on high and

exorbitant rates of interest by the village money-lenders, the advance sale of crops, land and mortgage of

land by the poor at the time when they are most in need.

To follow an approach of comprehensive development side by side with economic development; and

To provide financing to develop housing in the area.

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Selection of Beneficiaries

The RDS of All Islami banks is target group-based. Beneficiaries of the plan are thus landless, wage laborers and marginal farmers. Selection criteria for members of the target group are as follows:

(a)       Farmers owning up to 0.50 acres of land including sharecroppers;(b)       Persons engaged in non-agricultural activities owning up to 0.50 acres land or landless;(c)       Permanent resident of the project area;(d)       Borrower or defaulters of any other bank or organization will by no means be the beneficiaries of the plan;(e)       Females belonging to the families of the serial 1 and 2 above, interested in income earning projects, but who unable to do so due to dearth of money, may form a group and get the financial support;(f)        Distressed people may undertake income generating schemes in non-agricultural sectors such as cow/goat/duck/ chicken etc. for their self-employment; and(g)       Landless to be given priority in selecting target groups whose yearly family income must be below Tk. 15,000/-.

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Durations  and Maximum Limit of investment:

Sl. Sector of Investment Duration Ceiling of Investment(BDT)

1 Crop Production 1 year 25,000/-2 Nursery and commercial

production of Flowers & Fruits1 year 50,000/-

3 Agriculture Implements 1 to 3 years 50,000/-4 Live stocks 1 to 2 years 50,000/-5 Poultry & Ducker 1 year 35,000/-6 Fisheries 1 to 2 years 50,000/-7 Rural Transport 1 year 20,000/-8 Rural Housing 1 to 5 years 50,000/-9 Off-firm activities 1 year 50,000/-

Table: Sector of investment & maximum amount

Recommendation We would like to recommend the following undertakings by All this Eight Islamic banks to improve their performance:

Promotion, regulation and supervision of the Islamic banks in accordance with the recent

guidelines, laws and regulations seem inadequate since these are basically based on the

conventional wisdom and practices. The spread out mechanism of All the banks should be faster

and progressive as well.

Online banking should be introduced fluently in branches to compete with multinational banks.

More products of varied interests should be introduced for the diversified client group.

All The bank should take new marketing strategy which will responds and take

effective steps to increase faith on them.

To enhance the image of the bank and to assume social responsibility, Each of

the Islamic bank should engage itself to various social programs like scholarship to

poor but meritorious students, Empowerment of the children in abject poverty, Campaign

against dowry and other social evil etc.

If you have any question, you can ask us……….