Foreign Exchange Management Janata Bank Ltd Essay Example

a contract between a buyer and a seller under which the seller sells certain specific goods (permissible under Islamic Shari’ah and the Law of the land), to the buyer at a cost plus agreed profit payable in cash or on any fixed future date in lump-sum or by go downs. “Bai-Muazzal” means sale for which payment is made at a future fixed date or within fixed period. In short, it is a sale on Credit. Bai-Salam” is a mode of investment allowed by Islamic Shari’ah in which commodity(ies)/product(s) can be sold without having the said commodity (ies) /product(s) either in existence or physical /constructive possession of the seller. “Istisna'a” is a contract between a manufacturer/seller and a buyer under which the manufacturer/seller sells specific product(s) after having manufactured, permissible under Islamic Shari’ah and Law of the Country after having manufactured at an agreed price payable in advance or by go downs within a fixed period or on/within a fixed future date on the basis of the order placed by the buyer. “Ijarah” has been defined as a contract between two parties, the “Hiree” and “Hirer” where the Hirer enjoys or reaps a specific service on benefit against a specified consideration or rent from the asset owned by the Hiree. Hire purchase under Shirkatul Melk is a special type of contract, which has been developed through practice. Actually, it is a synthesis of three contracts: Shirkat, Izara and sale. Shirkat means partnership. Shirkatul Melk means share an ownership. * “Mudarabah” is a form of partnership where one party provides the funds while the other provides the expertise and management.

The first party is called the “Sahib-Al-Maal” and

the latter is referred to as the “Mudarib”. “Musharaka” is an Islamic financial technique that adopts “equity sharing” as a means of financing projects. Thus, it embraces different types of profit and loss sharing partnership. The partners (entrepreneurs, bankers) etc. Share both capital and management of a project.

The main objectives and principles of investment operations of the Bank are:

a) To invest fund strictly in accordance with the principles of Islami Shari’ah.

в) To diversity its investment portfolio by size of investment, by sectors (public and private) by economic purpose, by securities and by geographical area including industrial, commercial ; agricultural.

c) To ensure mutual benefit both for the Bank and the investment client by professional appraisal of investment proposals.

* Islami Bank Bangladesh Limited, being welfare oriented banking institution has by now designed and implemented Twelve Welfare Investment Schemes keeping in view the needs of different sectors and various sections of people for their socio-economic upliftment.

The Welfare investment schemes of IBBL are:

a) Household Durable Scheme

b) Investment Schemes For Doctors

c) Transport Investment Scheme

d) Small Business Investment Scheme

e) Agricultural Implement Investment Scheme

f) Housing Investment Scheme

g) Industry Investment Scheme

h) Rural Development Scheme

i) Car Investment Scheme

j) Mirpur Silk Weavers Investment Scheme

k) Micro Industries Investment Scheme

l) Real Estate Investment Program

* Islami Bank Bangladesh limited has both strengths and weaknesses. The major strength of IBBL is religious feelings of people and major weakness is absence of Islamic money market.

ACKNOWLEDGEMENT All praise goes to Almighty Allah who has given me the opportunity to do this report. It is a great pleasure for me to express my sincere appreciation to the Department of Business Administration, Shahjalal University of Science ; Technology for giving me the opportunity

to do this report. I want to mention the contribution of all those who have inspired, influenced and guided me to complete this report successfully. First of all, I would like to express my heartiest gratitude to my venerable supervisor Mr.

Mohammad Imtiaz Ferdous, Assistant professor, Department of Business Administration, Shahjalal University of Science ; Technology for his kind and sincere guidance, constructive criticism and personal supervision all through my work. I wish to acknowledge my gratitude to all my respected teachers of Department of Business Administration, for their suggestions and kind cooperation. I am also indebted to authority of Islami Bank Bangladesh Limited to give me chance for internship. Especially I convey my gratitude to Janab Abu Nasser Muhammad Abduz Zaher,Chairman,board of directors,IBBL,Jb.

AshequeAhmed Jebal,SVP ; FM,IBTRA,Jb. Md. Habibur Rahman,VP ;FM, IBTRA,Jb Md. Abdul Matin,VP ; FM,IBTRA, Besides this, all the faculty members of IBTRA deserve thanks for their encouragement and whole hearted co-operation . Deep sense of gratitude and profound respect goes to all the staffs of Sylhet branch, IBBL for their magnanimity. I am really indebted to Md. Ashraf Hossain(VP),Md. Anwar Hossain(AVP),Md. Saiful Islam(Senior officier), Md. Nurul Amin(Senior officer),Kazi Md. Nurul Islam(Principal officer) for their kind cooperation in all aspects.

Finally, I would like to extend my cordial compliments to my parents, friends and well-wishers for their inspiration and support throughout this report.

CHAPTER 1:

INTRODUCTION

1. 1Origin of the Report This report is based on an internship program. School of Management ; Business Administration, Shahjalal University of Science ; Technology arranges internship program in attachment with its students after the completion of theoretical courses (i. e. , after final semester) of program of Bachelor of Business Administration

(BBA).

Each intern must carry out a specific project, which is assigned by the concerned organization and approved by the Internship and placement committee of School of Management ; Business Administration. Consequently a report based on the project is to be submitted to the committee. In this particular report, the author is an intern of the previously mentioned program and the concerned organization is IBBL, which are a prominent private and the first Bank of Bangladesh that based on Islamic law. Hence, I was placed in the Sylhet Branch of Islami Bank Bangladesh Limited from July 31, 2007 to September 20, 2007.

In way of delegation; responsibility of carrying out the study has conferred upon the concerned intern.

1. 2 Background of the study Banking is one of the most important sectors for a country’s wealth building activities. At present the modern business industrialization, foreign trade, and investment depend on banks. But now a day the Banking sector of Bangladesh is suffering the disease of default culture, which is consequence or result of bad performance of most of the banks in Bangladesh. IBBL plays an important role towards the growth and economic development of Bangladesh.

This study is an attempt to produce a constructive report performance with special reference to the Welfare investment Schemes, modes, procedures and products of Islami Bank Bangladesh Limited.

1. 3 Objective of the study: The main objective of education is to acquire knowledge. To acquired knowledge ultimately I must do some practical application in addition to theoretical knowledge. The secondary objectives of the reports are:

* To find out the Investment Policy of IBBL as well as its pros and cons.

* To evaluate the Investment Modes

of IBBL and its effectiveness.

* To evaluate Different investment Schemes of IBBL. To find out problems and possible remedies of IBBL.

1. 4 Scope of the study This study makes attempt to cover within its scope almost all the significant aspects of Welfare investment schemes of Islami Bank Bangladesh Limited.

1. 5 Methodology: Mainly I have collected data from two sources. These two sources are as following: ?Primary source ?Secondary source The primary sources of my information are as below:

* Direct observation

* Investment Outlook

* Questioning the concerned persons. The secondary sources of my information are as below:

1. Web Site of IBBL.

2. Different reference books of the library.

3. Annual report of IBBL

4. Other manual information.

5. Desk report of the related department.

1. 6 Limitations of the study: There are some limitations in my study. I faced some problems during the study which is mentioned below Lack of time: The time period of this study is very short. I had only 5 weeks in my hand to complete this report, which was not enough. So I could not go in depth of the study. Sometimes the officials were busy and were busy and were not able to give me much time. Insufficient data: Some desired information could not be collected due to confidentially of business.  Lack of monitory support: Few officers sometime felt disturbed, as they were busy in their job. Sometime they didn’t want to supervise me out of their official work.  Other limitation: As I am newcomer, there is a lack of previous experience in this concern. And many practical matters have been written from my own observation that may vary from person to person.

AN OVERVIEW OF IBBL

Introduction

Islam is not only a religion but also a complete code of life and Islami Banking ; finance is an integral part of life of a Muslim.

Similarly Shari’ah Concept and principles are unavoidable code of business operations of the Bank. An Islami Bank is a financial institute whose status, rules and procedures expressly state its commitment to the principles of Islamic Shari’ah and to the banning of the receipt and payment of interest on any of its operation. Islamic bank is essentially a normative concept and could be defined as conduct of banking in consonance with the ethos of value system of Islam. The principle sources of Islamic Banking are “Quran” and “Hadith”.

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. 2. 2 The relationship between Banking system and Islam. ISLAM AQIDAH AKHLAQ SHARIAH POLITICAL ACTIVITIES ECONOMIC ACTIVITIES SOCIAL ACTIVITIES

BANKING ;FINANCIAL ACTIVITIES IBADAT MUAMALAT Fig:

The Relation Ship between Banking System and Islam. Source: Arif, M (1982).

2. 3 Review of literature

* By studying the book “Allocative Efficiency, Decision and Welfare in an Interest-Free Islamic Economy: A Comparative Policy Approach” written by Mannan, M. A. (1982), I came to know about how resources of a nation can be efficiently allocated in interest free economy.

* By studying the book “Monetary

and Fiscal Economics of Islam” written by M. Arif, I know about various investment strategies that effect monetary and fiscal policy in Islamic economy. By reviewing the book “Islamic Interest-Free Banking” written by Mohsin S. Khan (1995), I understand about the difference between conventional banking and interest free banking.

* Rushdi, A. A. (1988) in his book “The Effects of Elimination of Riba on Income Distribution” shed light on how interests adversely effect the equal distribution of income in the society.

* Siddiqi, M. N. (1983) in his book “Economics of Profit-Sharing” describes about the macroeconomic and microeconomic aspects as well as how investment in various sectors can be generated and mobilized in an efficient way in profit sharing economy. . 4 History of Islamic Bank In the late seventies and early eighties, Muslims countries were awoken by the emergence of Islami bank which provided interest free banking facilities. There are more than 300 interests free institutions all over the world. Islami bank now a day not only operate in all most all Muslims countries but have extended their wings to the western world to serve both Muslims and non Muslims countries. In case of Islami Banking, The establishment of mitghamar local savings Bank in 1963 is said to be a mile stone for modern Islami Banking.

The history of Islami Banking can nevertheless be traced back to the birth of Islam.

2. 5 Definition of an Islamic Bank An Islami 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. The Organization of Islamic Conference (OIC) defined an Islamic Bank as “A financial

institution whose statutes, rules and procedures 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. According to Islamic Banking act 1983 of Malaysia “An Islamic Bank is a company which carrying on Islamic Banking business whose aims and operations do not involve any element which is not approved by the religion of Islam”

2. 6 Differences between CONVENTIONAL BANK AND ISLAMIC BANK Conventional Bank| Islamic Bank| Collection of deposit on the basis of interest. | Collection of deposit on the basis ofProfit sharing. | Extending credit on basis of interest. |

Investment following “Bai” mode/“Share” mode/Lease mode. | Creating medium of exchange and credit. Acting against creation of medium of exchange and credit. | Investment in share and securities. | Investment in share and “Mudaraba” bond. | Discounting of Bill. | No discounting of Bill. | Fig: Difference between Conventional Bank and Islamic Bank. Source: Akkas S. M. A (1985). 2. 7 Difference between “Riba” (Interest) and Profit.

2. 7. 1 “Riba” (Interest) : Dictionary Meaning of Riba is Increase, Excess and Additional etc. Technical meaning of Riba is Interest/Usury/Sud etc.

2. 7. 2 “Riba” in the “Holy Quran”: 1st Revelation: Su’ratur Rum: Ayat 39 And whatever “Riba” you give so that it may increase in the wealth of the people, it does not increase with Allah: but that which you give in “Zakat” seeking Allah’s. Countenance, then those they has manifold increase”. 2nd Revelation: Su’ratun Nisa: Ayat 161 “And they took “Riba”, though they were forbidden; and that they devoured men’s substance wrongfully we have prepared for the disbelievers among them

a grievous punishment. ” 3rd Revelation: Su’rah Ale Imran: Ayat 130 “O you who believe! Eat not “Riba” doubled and multiplied; but fear Allah that you may (really) prosper. 4th Revelation: Su’ratul Baqarah: Ayat 275-281: “Those who eat “Riba” will not stand except like the standing of the person whom the Shaitan by his touch has driven to madness/insanity. That is because they say “Bai is Like Riba”,but Allah has permitted Bai and forbidden “Riba”. Hence whosoever receives this admonition from lord and stop eating “Riba” may keep his previous gain; his case is for Allah (to judge). But whoever reverts to it, they are the companions of the fire, they shall abid therein(forever). ”Why “Riba” is prohibited:

Today Interest has affected not only the debtor and creditor, but also the economic, social and political life of human being at large.

The Impacts of Riba are as following:

1. Riba decrease savings. It restricts investment, production and increase unemployment. Because people have to pay additional money of interest, if it were not people could invest money another production sectors that will increase Savings and employment opportunity.

2. It create “Injustice” and enhances difference between ‘have’ and ‘have-nots’.

3. Riba creates inflation, fluctuation and volatility.

4. Riba leads to destruction.

For this reasons, from the Islamic Shari’ah point of view, Riba is Harram.

2. 7. 4 Profit: Profit emanates from investment and investment is not possible without “Bai”. Investment means to buy goods and services with a view to earn profit with risk of loss. When this goods and services are sold again, money comes back. This cyclic process may express as follows: “Transformation of Money into goods with risk of loss, Again Transformation

of goods into Money. ”

2. 7. 5 Why Profit is Permissible: Profit is the result of ownership transaction and risk following the fours stages:

* Transformation through Bai /Buying Selling of goods. Risk of Transformation and Ownership.

* Other Condition of Shariah.

* Result-Profit on loss. Profit is the difference between the value of production and the cost of production, which is Halal according to Islami Shari’ah. So profit is Permissible in Islamic Shari’ah.

2. 8 Shari’ah Council of the Bank There is a Shariah Council of the Bank that consists of prominent Ulema, reputed Bankers, renowned Lawyers and eminent Economists to advise and guide on the implementation and compliance of Shariah principles in all the activities of the Bank particularly on the modes of investments.

The Council enjoys a special status in the structure of the bank that meets frequently and plays a vital role. It also conducts Shariah inspection of Branches to ensure that the Shariah principles are implemented and complied with by the Branches of the Bank.

Misconceptions about Islamic Banking:

• Misconception that, Islami Bank takes interest indirectly.
• Misconception about Percentage (%) and Fixed Rate.
• Misconception about that, Islami Bank offer profit to Shareholders at Fixed Rate.
• Misconception about that, Islami Bank takes profit at Fixed Rate from clients like others conventional Banks. Misconception about that, Islami Bank always offers profit to its depositor like others conventional Banks.
• Misconception about that, Islami Bank does not bear Profit and Loss.
• Misconception about that, Islami Bank does not impose similar profit for Various Products.
• Misconception about that, Islami Bank Imposed compensation on Bankrupt.
• Misconception about that, Islami Bank transaction with Bangladesh Bank as like as other conventional bank.
• Misconception about
  

that, Islami Bank transacted with Foreign Bank with Interest.

Back Ground and Status of IBBL Islami Bank Bangladesh Ltd. IBBL) was incorporated on march 13, 1983 under the companies Act. 1983 as the first interest fee shari’ah based commercial bank in South-East Asia. IBBL started functioning on march 30, 1983 and formally inaugurated on August 12, 1983. The bank was promoted by 23 local sponsors including the government of Bangladesh and 4 local institutions and 13 foreign sponsors including Islamic Development Bank and 10 other foreign institutions. The bank went for public offering in november,1985. The got enlistment with Dhaka Stock exchange limited in 1985 and with chittagong stock exchange limited in 1996.

The core objective of the bank is to conduct interest-free banking and to offer contemporary financial services in confirmations with Islamic Shari’ah.

Other objectives are:

* To establish participatory banking instead of banking on debtor-creditor relationship.

* To invest through different modes permitted under Islamic Shariah.

* To accept deposits on profit-loss sharing 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 development.

* To play a vital role in human development and employment generation. To contribute towards balanced growth and development of the country through investment operations particularly in the less developed areas.

2. 16 Mission of IBBL

* To established Islamic Banking through the introduction of welfare oriented banking system and also ensure equity and justice in the field of all economic activities,

* Achieve balanced growth and equitable development through diversified investment operations particularly in the priority sectors and less development areas of the county.

* To encourage socio-economic development and financial services to the low-income community

particularly in the rural areas. . 17 Vision of IBBL The vision of IBBL is to always strive to achieve superior financial performance, be considered a leading Islamic Bank by reputation and performance.

* To establish and maintain the modern banking techniques, to ensure the soundness and development of the financial system based on Islamic principles and to become the strong and efficient organization with highly motivated professionals, working for the benefit of people, based upon accountability, transparency and integrity in order to ensure stability of financial system. Try to encourage savings in the form of direct investment

* Try to encourage investment particularly in projects, which are more likely to lead to higher employment.

2. 18 Functions of IBBL According to Bangladesh Bank “The bank will operate within the framework of the existing banking laws, rules and regulations subject to such minor adjustments that may be considered for an Islamic Bank to function” The functions of Islami Bank Bangladesh Limited are as under a)To maintain all types of deposit accounts. b)To make investment. c)To conduct foreign exchange business. d) To extend other banking services.

2. 19 Business Philosophy of IBBL The philosophy of IBBL is to the principles of Islamic Shariah. The Organization of Islamic conference (OIC) defines an Islamic bank as "a financial institution whose status, rules and procedures expressly state its commitment to the principles of Islamic Shariah and to the banking of the receipt and payment of interest on any of its operations. The sponsor, perception is that IBBL should be quite different from other privately owned and managed commercial bank operating in Bangladesh, IBBL to grow as a leader in the industry rather than

a follower.

INVESTMENT POLICY

Introduction Investment operation of a Bank is vital importance the greatest share of total revenue is generated from it, maximum risk is centered in it and the very existence of a Bank mostly depends on prudent management of its Investment Port-folio. As such, for efficient deployment of mobilized resources in profitable, safe and liquid investments, a sound, well-defined, well-planned and appropriate Investment Policy framework is necessary prerequisite for achieving the goal of the Bank.

The special feature of the investment policy of the Bank is to invest on the basis of profit-loss sharing system in accordance with the tenets and principles of Islamic Shariah Earning of profit is not the only motive and objective of the Bank’s investment policy rather emphasis is given in attaining social good and in creating employment opportunities. Pursuant to the Investment Policy adopted by the Bank a 7-year Perspective Investment Plan’ has been drawn-up for the year 1995 to 2002 and put into implementation. Recently a further 5-year perspective investment plan has been drawn up for the year 2003 to 2007 and put into implementation. .

2 Objectives and Principles The objectives and principles of investment operations of the Bank are:

* To invest fund strictly in accordance with the principles of Islami Shariah.

* To diversity its investment portfolio by size of investment, by sectors (public and private) by economic purpose, by securities and by geographical area including industrial, commercial & agricultural.

* To ensure mutual benefit both for the Bank and the investment client.

* To make investment keeping the socio- economic requirement of the country in view.

* To increase the number of potential investors by making participatory and productive investment. To

finance various development schemes for poverty alleviation, income and employment generation with a view to accelerate sustainable socio-economic growth and for upliftment of the society.

* To invest in the form of goods and commodities rather than give out cash money to the investment clients.

* To encourage social upliftment enterprises.

* To shun even highly profitable investment in fields forbidden under Islamic Shariah and are harmful for the society.

* The Bank extends investments under the principles of Bai-Murabaha, Bai-Muazzal, Hire Purchase under Shirkatul Melk and Mudaraba.

The Bank is making sincere efforts to go for investment under Mudaraba principle in near future.

3. 3 Importance of Assessing of Investment Needs: Assessment of Investment needs is necessary for the following reasons:

a) To detect actual Investment limit of Bank.

b) To detect actual Investment against obsolete /out dated/non trading items.

c) To assess the quality, quantity, price and marketability of the commodities

d) To ensure proper follow-up supervision and monitoring of the Investment.

e) To ensure capacity of the client in handling Investment activities.

i) To over come the situation of Division of found by the clients

g) To ensure trading instead of lending of money.

h) To ensure payment against delivery of goods.

i) To ensure actual buying and selling of goods.

j) To select proper & genuine Investment client.

k)To ensure viability/profitability of the project.

l) To ensure compliance of Shariah Principles.

m) To maintain discipline in the Investment port-folio of the Branch.

n) To secure the Investment.

o) To allow Investment for appropriate period.

p) To handle the Investment proposal efficiently.

q) To ensure investment for productive purpose.

3. 4 Induction of Investment Clients

3. 4. 1 Why of Induction Potential clients may be advised to open Al-Wadiah Current Account, if there is no such account.

The client should maintain the current account, satisfactorily for a reasonable period.

a. Preliminary discussion may have with the prospective client regarding his line of business, experience & investment needs.

b. The past performance of the client to be studied and Branch’s track record of proposed investment.

c. If the proposal found suitable the client may be asked to submit a formal application along with necessary papers/documents.

3. 4. 2 Criteria for selection Clients of the Bank for following Investment are to be selected with prudence and good judgment. It should be kept in mind that the person are important than their properties. A detailed credit report of the client must be prepared and all necessary information’s should be collected and verified at the time of selection of the client. Clients of distant area/beyond control should not be entertained. The following factors/qualities /information may be considered at the time of selection of investment client.

a) Brief history of financial /credit transaction of the client.

b) Social and financial behavior of the client should be verified /assessed.

c) Ability of the client of utilization of credit / Investment fund.

d) Ability of the client regarding repayment of Investment.

e) Equity of the client. f) Effect of National & International Economic problems/crisis. The above mentioned factors may be categorized under 5-C’s.

* Character

* Capacity

* Capital

* Collateral

* Condition

3. 6 The 5-year perspective investment plan from 2003-2007 In accordance with the investment Policy, 5 year Perspective Plan from 2003 to 2007 is formulated.Deposit target of the Bank’s on September 30, 2002 plus 10% has been taken as base and 90% of the year-wise estimated deposits have been as invest able fund. Size-wise, sector-wise, geographical area-wise, economic purpose-wise, security-wise allocation

of estimated invest able funds is made in accordance with the weight age given in the Investment. The distribution of investments by size of accounts (in million tk. ) is shown in table 3(annex). In table 3 we see that the bank plans to invest heavily in large size of accounts. The bank desires to invest 40% of otal investable fund in account of 5 million or above and 20% in account size of upto . 5 million. In table 4 of annex we see that IBBL formulate strategy to invest only 5% in public sector and 95% in private sector in all the years. The bank desires to invest heavily in private sector because private sector is more efficient, more effective and more productive than public sector. Distribution of investments by areas (urban & rural) is shown in table 5 of annex in million tk. In table 6 we see that the emphasizes more to invest in urban area than rural area.

But it is evident from the table that the bank wants to gradually reduce investment in urban area and increase investment in rural area. At every year from 2003-2007 the bank planned to increase 1% investment in rural area and decrease 1% investment in urban area. In 2003 the bank planned to invest 94% in urban area and 6% in rural area but in 2007 the bank planned to invest 90% in urban area but 10% in rural area.

MODES OF INVESTMENT

There are three types of Investment Mode which are: * “Bai” Mode (Trading):

1. Bai Murabaha.

2. Bai Muazzal.

3. Bai Salam.

4. Bai Istishna’a. “Ijarah” Mode (Leasing):

1.Hire purchase (Ijarah).

2. Hire purchase under Shirkatul Melk.

Share Mode:

1. Mudaraba.

2.

Musharakah.

4. 1 Bai Mode (Trading)

4. 1. 1 Bai -Murabaha

* Meaning: The terms “Bai-Murabaha” have been derived from Arabic words Bai and Ribhun. The word bai means purchase and sale and the word Ribhun means an agreed upon profit. “Bai-Murabaha” means sale on agreed upon profit.

* Definition: “Bai-Murabaha may be defined as a contract between a buyer and a seller under which the seller sells certain specific goods, to the buyer at a cost plus agreed profit payable in cash or on any fixed future date in lump-sum or by go downs.

The profit marked-up may be fixed in lump-sum or in percentage of the cost price of the goods. ”

* Types of Murabaha In respect of dealing parties Bai-Murabaha may be of two types. Ordinary Bai-Murabaha: If there are only two parties, the seller and the buyer, where the seller as an ordinary trader purchases the goods from the market without depending on any order and promise to buy the same from him and sells those to a buyer for cost plus profit, then the sale is called Ordinary Bai-Murabaha. Bai-Murabaha on Order and Promise:

If there are three parties, the buyer, the seller and the Bank as an intermediary trader between the buyer and the seller, where the Bank upon receipt order from the buyer with specification and a prior outstanding promise to buy the goods from the Bank, purchases the ordered goods and sells those to the ordering buyer at a cost plus agreed profit, the sale is called “Bai-Murabaha on Order or Promise”.

* Important features:

* It is permissible for the Client to offer an order to purchase by the Bank agriculture goods deciding its

specification and committing him to buy the same from the Bank on Murabaha, i. . cost plus agreed upon profit.

* It is permissible to make the promise binding upon the Client to purchase from the Bank.

* It is permissible to take cash/collateral security to guarantee the implementation of the promise or to indemnify the damages.

* Stock and availability of goods is a basic condition for signing a Bai-Murabaha Agreement. Categorization: Categorize the proposal as under:

* Bai-Murabaha Commercial * Bai-Murabaha Industrial

* Bai-Murabaha Agriculture

* Bai-Murabaha Import

4. 1. 2 Bai Muazzal

* Meaning: The terms “Bai” and “Muazzal” have been derived from Arabic words “Biam” and “Muraba”.

The word “Bai” means purchase and sale and the word “Muazzal” means a fixed time. “Bai-Muazzal” means sale for which payment is made within fixed period. In short, it is a sale on Credit.

* Definition: “Bai-Muazzal may be defined as a contract between a buyer and a seller under which the seller sells certain specific goods , to the buyer at a cost plus agreed profit payable in cash or on any fixed future date in lump-sum or by go downs. ” Categorization: Categorize the proposal as under

* Bai-Muazzal” Commercial.

* Bai-Muazzal Industrial.

* Bai-Murabaha Agriculture. Bai-Muazzal Import.

* Important Features:

* Bank is not bound to declare cost of goods and profit mark-up separately to the client. * Spot delivery of the item and payment is deferred.

* Ownership and possession of the goods is transferred by the Bank to the client before receipt of sale price.

* It is permissible to make the promise binding upon the client to purchase from the Bank.

* Mortgagee/Guarantee/Cash Security may be obtained before /at the time of signing the agreement.

* Stock

and availability of goods is a pre-condition for Bai-Muazzal agreement. The bank must deliver the specified goods to the client on specified date and at specified place of delivery as per contract.

4. 1. 3 Bai- Salam This term refers to Advance Payment for Goods which are to be delivered later. “Bai-Salam contract will be executed after making any investment showing price, quality, quantity, time, place and mode of delivery. The profit is to be negotiated. It this mode the payment as the price of the goods is made at the time of Agreement and the delivery of the goods is deferred. ” Important Features:

Bai-Salam is a mode of investment allowed by Islamic Shariah in which commodity(ies)/product(s) can be sold without having the said commodity (ies) /product(s) either in existence or physical /constructive possession of the seller. If the commodity (ies)/product(s) are ready for sale, Bai- Salam is not allowed in Shariah. T * Generally, industrial and agricultural products are purchased/sold in advance under Bai-Salam mode of investment. * It is permissible to obtain collateral security from the seller client to secure the investment from any hazards viz. supply of low quality commodity (ies) /product(S). It is also permissible to obtain Mortgage and /or Personal Guarantee from a third party as security before the signing of the Agreement or at the time to signing the Agreement * Bai-Salam on a particular commodity (ies)/product(S) or on a product of a particular field or firm cannot be affected (for Agricultural Product(s) only).

4. 1. 4Istisna’a “Istisna'a” is a contract between a manufacturer/seller and a buyer under which the manufacturer/seller sells specific product(s) after having manufactured, permissible under Islamic Shariah

and Law of the Country after haying manufactured at an agreed price payable in advance or by go downs ithin a fixed period or on/within a fixed future date on the basis of the order placed by the buyer. ” Important Features:

* “Istisna’a” is an exceptional mode of investment allowed by Islamic Shariah in which product(s) can be sold without having the same in existence. If the product(s) are ready for sale that is not allowed by Istisn’a.

* It facilitates the manufacturer sometimes to get the price of the goods in advance, which he may use as capital for producing the goods.

* It gives the buyer opportunity to pay the price in some future dates or by go downs.

4. 2 Ijarah Mode (Leasing) 4. 2. Hire Purchase /Ijarah The term Ijarah has been derived from the Arabic works “Ajr” 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 Hiree 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 Hiree. It is a hire agreement under which a certain asset is hired out by the Hiree to a Hirer against fixed rent or rentals for a specified period.

4. 2. 2Hire Purchase under Shirkatul Melk Hire purchase under Shirkatul Melk is a special type of contract which has been developed through practice. Actually, it is a synthesis of three contracts: Shirkat, Izara and sale. Shirkat means partnership. “Shirkatul Melk means share an 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 contract. ” Stages of Hire Purchase under Shirkatul Melk Thus Hire

Purchase under Shirkatul Melk Agreement has got three stages:

* Purchase under joint ownership.

* Hire and

* Sale and /or transfer of ownership to the other partner Hirer Important Features:

* In case of HPSM transaction the asset / property involved is jointly purchased by the Hire (Bank) and the Hirer (Client) with specified equity participation under a Shirkatul Melk Contract in which the amount of equity and share in ownership of the asset of each partner are clearly mentioned. In HPSM Agreement, the exact ownership of both the Hire (Bank) and Hirer (Client) must be recognized. No third party registration shall be allowed.

* As the ownership of hired portion of the asset lies with the Hire (Bank) and rent is paid by the Hirer (Client) against the specific benefit, the rent is not considered as price or part of price of the asset. *

In the HPSM Agreement the Hire (Bank) does not sell or the Hirer (Client) does not purchase the asset but the Hire (Bank) promise to sell asset to the Hirer (Client) part by part only. The promise to transfer legal by the Hire undertakings given by the Hirer to purchase ownership of the hired asset upon payment part by part as per stipulations are effected only when it is actually done by a separate sale contract.

4. 3 Share Mode

4. 3. 1 Mudarabah “It is a form of partnership where

one party provides the funds while the other provides the expertise and management. The first party is called the “Sahib-Al-Maal” and the latter is referred to as the “Mudarib. ” Any profits accrued are shared between the two parties on a pre-agreed basis, while capital loss is exclusively borne by the partner providing the capital.

* Important features:

* Bank supplies capital as Sahib-Al-Mall and the client invest if in the business with his experience.

* Administration and management is maintained by the client.

* Profit is divided as per management.

* Shahib-Al-Maal (Bank) bears the loss alone.

*Client can not take another investment for that specific business without the permission of the Bank

4. 3. 2 Musharaka An Islamic financial technique that adopts “equity sharing” as a means of financing projects. Thus, it embraces different types of profit and loss sharing partnership, where loss is shared according to ratios of their equity participation. Important features:

* The investment client will normally run and manage the business.

* The Bank shall take part in the policy and decision making as well as overseeing (supervision and monitoring) the operations of the business of the client.

* As the investment client shall manage the enterprise, the Bank may pay more share of profit to him than that of his proportionate capital contribution.

* Loss, if any, shall be shared on the basis of capital ratio

4. 4 Two other modes of investment which have limited impact

4. 4.1 Quard Quard is given to the accountholders of Mudaraba Term Deposit Receipt A/C and Mudaraba Savings Bond A/C by lining these accounts.

* Purpose of Quard:

* To meet emergency needing /necessities of the accountholder.

4. 4. 2 Quard-E-Hasana Quard-E-Hasana is given to the staffs

against President Fund, Benevolent Fund and other people for general purpose.

* Purpose of Quard-E-Hasana:

* Meet emergency and general needing /necessities

* To meet general purpose.