Islamic Finance in Bangladesh

In: Business and Management

Submitted By faiz3443
Words 319
Pages 2
Bangladesh is the first country in the Southeast Asia to have an Islamic bank. The idea to have an Islamic banking system is recommended by Organisation of the Islamic Conference (OIC) in 1978. The founder of this successful establishment is late Fouad Abdul Hameed Al-Khateeb. He is the Saudi Arabia’s first ambassador stationed at Bangladesh from 1977- 1982. He also organized a team with other scholars to start a project to establish Islamic bank and financial institutions based on shariah. In 1983, Islami Bank Bangladesh Limited (IBBL) was established and followed by the others such as Al-Arafah Islami Bank and Shahjalal Islami Bank Ltd.

However, to trigger the effort that can make this idea come true is not easy. Bangladesh is also facing the challenges regarding the problem that comes through this phenomenon in this Islamic world. First of all, the modes of investments like Mudarabah and Musharakah are not really practices in Islamic banking services. It is because there are insufficient factors such as committed entrepreneur and committed professional who can create new instruments. Furthermore, the absence of Islamic money market have made banks cannot invest their surplus fund so their profit will be affected. The ability of Islamic bank in Bangladesh to use tradable financial instrument is also not clear because the absence of suitable long term assets.

The progression of Islamic finance in Bangladesh has growth in positive value in last few decades. It is because the demand for this kind of financial services is always there. Today, from 48 banks that run in Bangladesh, six are fully based on shariah principle. Besides that, about 10 of conventional banks were already launched the Islamic windows which also provide the Islamic banking products and services.…...

Similar Documents

Islamic Banking System in Bangladesh

...UNIVERSITY BANGLADESH A Report submitted in partial fulfillment of the degree of Bachelor in Business Administration (BBA) REPORT TOPIC: Islamic Banking System in Bangladesh Course name: INTRO. TO BEHAVIORAL SCIENCE Section: F (BBA) Course Instructor: MOHAMMAD MOSTOFA JAMAN Faculty of Business Administration Department of BBA American International University-Bangladesh Group Members Name and ID: 1. Nahar Tanjin 2. Nibir Md. Nahidul Islam 3. Niger Farzana 4. Hossain Mohammad Saddam 5. Mustasin Abdullah Al Date of Submission: 13th December, 2011 SOCIAL ISLAMI BANK LTD. A Joint Venture Islamic Bank SOCIAL ISLAMI BANK LIMITED 15, Dilkusha Commercial Area Dhaka-1000 Bangladesh Phone: 880-02-9559014, 9557499, 9568275, 9565647 Fax: 9568098 E-mail: info@sibl-bd.com ceo@sibl-bd.com URL: www.siblbd.com Webmail: mail.sibl-bd.com LETTER OF TRANSMITTAL 13TH December, 2011. MOHAMMAD MOSTOFA JAMAN Faculty of Business Administration Department of BBA American International University-Bangladesh Subject: Submission of the report on Islamic Banking System in Bangladesh. Dear Sir, Following your instruction we have prepared a formal report on “Islamic......

Words: 3166 - Pages: 13

Islamic Finance

...SECTION A: LIST OF SYARIAH COMPLIANCE COMPANY In Malaysia, Kuala Lumpur Stock Exchange Shari’ah Index (KLSESI) was introduced in 1997 by Securities Commission (SC). KLSESI was introducing to provide an avenue for Muslims investors to participate in equity investment in accordance to Shari’ah principle. This index comprised of firms listed on both the Main and the Second Board, and Masdeq at KLSE (Bursa Malaysia). KLSESI is the tool in Islamic capital market (ICM) plan where the activities carried out in that market are not conflict with the conscience of Muslims and religion of Muslim. Besides, the ICM represents an assertion of religious law in capital market transactions where the market should be freed from the involvement of prohibited activities by Islam. Under this index, it focuses on the core activity and level of interest income of company to determine whether a particular company is permissible or not in the index. Before companies listed on KLSE, they should make sure that their investments are permissible under Shari’ah law. The activities are considered impermissible if the operations are based on the interest; involve gambling, manufacture or sale haram products or contains elements of gharar. Furthermore, for companies that compromised both permissible and non-permissible elements, there are several additional criteria. The criteria are: a) The core activities of the companies must not contravene the principles of Shari’ah as outlined in the four......

Words: 1620 - Pages: 7

Islamic Finance

... Islamic Banking and Finance To Dr Mohammad Omar Zubair, who is a source of inspiration for all those working in the field of Islamic economics and finance Islamic Banking and Finance New Perspectives on Profit-Sharing and Risk Edited by Munawar Iqbal Islamic Development Bank, Saudi Arabia David T. Llewellyn Loughborough University, UK Edward Elgar Cheltenham, UK • Northampton, MA, USA In association with: International Association of Islamic Economics Islamic Development Bank The Islamic Foundation © Dr Munawar Iqbal and Professor David T. Llewellyn 2002 (on behalf of the Steering Committee for the Fourth International Conference on Islamic Economics and Banking held at Loughborough University, UK, August 13–15, 2000) All rights reserved. No part of this publication may be reproduced, stored in a retrieval system or transmitted in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise without the prior permission of the publisher. Published by Edward Elgar Publishing Limited Glensanda House Montpellier Parade Cheltenham Glos GL50 1UA UK Edward Elgar Publishing, Inc. 136 West Street Suite 202 Northampton Massachusetts 01060 USA A catalogue record for this book is available from the British Library Library of Congress Cataloguing in Publication Data Islamic Banking and Finance: New Perspectives on Profit-Sharing and Risk / edited by Munawar Iqbal, David T. Llewellyn p. cm. “Some of the papers were......

Words: 106697 - Pages: 427

Islamic Finance

...history in Islamic finance that dates back to 1978 when the Islamic Banking System Holdings Limited Luxembourg was established as the first Islamic financial institution in Europe. This was followed by the establishment of Takafol S.A. in 1982, the first Islamic insurance company in Europe. Such history has improved the attractiveness of Luxembourg within Islamic finance industry. There are some recent developments: Since April 2008, the Minister of Finance has set up a task force bringing together key actors of the Islamic finance industry in Luxembourg. Its mission is to look at how Islamic finance can be further developed in Luxembourg. In 2008, the Association of the Luxembourg Funds Industry (ALFI) launched a working group focusing on the development of Luxembourg as a center of excellence for Shariah compliant funds. In early 2009, the Luxembourg Deutsche Bank launched "Al Mi'yar", a Luxembourg domiciled platform which aims at smoothing the issuance of Shariah compliant securities. In 2009, the Central Bank of Luxembourg became a member of the Islamic Financial Services Board (IFSB) and, as such, is the first Central Bank of the European Union to become a member of that institution. In January 2010, the Luxembourg Tax Authority published a circular, the object of which is to clarify the tax treatment of Murabaha and Sukuk transactions and ensure that they benefit from the same tax treatment as conventional financing products. In April 2010, Luxembourg for Finance......

Words: 1079 - Pages: 5

Islamic Finance

...Islamic Economic Studies Vol.9, No. 2, March 2002 FINANCING MICROENTERPRISES: AN ANALYTICAL STUDY OF ISLAMIC MICROFINANCE INSTITUTIONS HABIB AHMED ∗ While conventional microfinance institutions (MFIs) have expanded their operations in the last two decades, poverty-focused MFIs based on Islamic principles are lagging behind. This paper provides the theoretical basis, operational framework, and empirical support for the establishment of Islamic MFIs. After critically evaluating the conventional MFIs, an Islamic alternative is presented. The theoretical part of the paper shows that there is a great potentiality of Islamic MFIs that can cater for the needs of the poor. Islamic MFIs have some inherent characteristics that can mitigate some of the problems faced by conventional MFIs. Empirical evidence from three Islamic MFIs operating in Bangladesh, in general, supports some of the theoretical assertions. The case studies, however, reveal that Islamic MFIs have not yet tapped some of the sources of funds, nor have they used the variety of financial instruments in their operations. 1 ?. INTRODUCTION With the failure of experimenting in top-down (trickle down) development policies for a few decades to alleviate poverty in most developing countries, financing microenterprises is considered a “new paradigm” for bringing about development and eradicating absolute poverty. 1 Though the importance of developing small-scale enterprises has been discussed for a long time, the......

Words: 14577 - Pages: 59

Islamic Banks in Bangladesh

...Term Paper on What is investment and debt/trade financing modes followed by Islamic Banks in Bangladesh. Do they conform to shariah rules. If so, how and if not, why not. Give your own conclusion/concluding remarks / recommendation. Course code: Fin-5502 Subject: Submission of Term Paper Dear Sir, I am very much delighted that I am submitting herewith my term paper titled “what is investment and debt/trade financing modes followed by Islamic Banks in Bangladesh. Do they conform to shariah rules. If so, how and if not, why not ” under the reference of my term paper for partial fulfillment of MBA Program on the Comparative Banking. As of the requirement, I have closely studied the topic and tried my best to make this paper meaningful. I believe and hope that you will find this report informative and insightful. Your valued assessment of my assignment would help me in the enhancement of my skill, knowledge and efficiency. Any further clarification, if needed, regarding the paper will be instantly responded. Regards. ___________________ Saima Sultana Acknowledgement In preparing this report, I am beholden to the most venerable teacher Mr.x, Faculty, Department of Business Administration, IIUC for his guidance and supervision for furnishing this term paper. I am very much pleased on him for his continuous encourage to undertake the term paper, to collect, analyze data and finally editing, presentation of...

Words: 8670 - Pages: 35

Islamic Finance

...MALAYSIAN PRACTICE OF AR-RAHNU SCHEME: TRENDS AND DEVELOPMENT By: Azila Abdul Razak Introduction The important of helping the needy especially the poor has long been emphasized in much of Islamic faith. Therefore, lending to the needy should be the main focus in Islamic finance. In this context, the Islamic pawnshop (ar-rahnu scheme) is the most appropriate mechanism as it provides a financial product for the lower-income group and small businesses which usually have limited capital or have been excluded from the mainstream financial system. Prior studies have shown the importance of Islamic pawnshop to the Muslim societies1. Before the implementation of the Islamic pawnshop system, the conventional pawnshops had charged high interest rates on the loans given. The conventional pawnshops were more motivated on making profit from the needy individuals and this activity was only restricted by the laws in the Pawnbrokers Act 1972. The conventional pawnshops had indeed oppressed and put a burden on the lower-income group. The purpose of the Pawnbrokers Act 1972 was to guarantee a healthy pawnshop industry, as well as safeguarding the interests of the consumers. However, it failed to control the problems of the oppression of the lower income group and the pawnbrokers’ malpractices. In fact, it seemed to encourage the practice of usury, with high interest rates of 2 percent per month, or 24 percent per annum. The high interest rates make it difficult for the consumers to reclaim......

Words: 4453 - Pages: 18

Islamic Finance

...Introduction to Islamic Insurance K. M. Mortuza Ali 1 K. M. Mortuza Ali Managing Director Prime Islami Life Insurance Limited 29 Dilkusha C/A Raj Bhaban (6th Floor) Dhaka – 1000 Phone – 9560889, 9570729 (Off) 8353552 (Res) Mobile – 019-366617 Fax – 880-2-9564390 Email – plicl@bdonline.com kmortuza@bdmail.net 2 Chapter (I) Basic ideas about Risk & Insurance 1. 2. 3. 4. 5. 6. 7. 8. 9. What is Risk? How do we distinguish between pure risk and speculative risk ? How risk is handled? Why every risk is not insured? What are the characteristics of Insurable risks? What are the requisites of Insurance for Covering Risk? What are the Principles of Insurance contract? What are the different types of Life Insurance policies? How Insurance is different from Gambling? 10. What is the main function of insurance? 11. What is the greatest value of insurance? 12. What is the Purpose of Life Insurance? 13. How insurance protects value of life? 14. How life Insurance schemes meet the saving needs? 15. What are the social and economic values of Insurance? 16. What is the Actuarial principle of Life Insurance? 17. What is reinsurance? 18. What are the different methods of reinsurance? 1. What is Risk? Risk has been defined as the uncertainty as to the occurrence of an economic loss. It is the passivity of adverse result from a desired outcome. Risk and probability are not synonymous. We must understand the difference between risk and probability. The terms hazard and peril......

Words: 44615 - Pages: 179

Islamic Finance

...between Islamic Finance and conventional Finance principles. In order to do this, firstly it is necessary to determine the scope and establish some of the fundemental concepts that define Islamic Finance, or "Sharia compliant banking" as it is often referred to. After this, it will be possible to discuss some of the advantages that Islamic Finance institutions have over the typical conventional banks. As of 2014, Islamic Financial institutions represented around 1% of the total assets throughout the world, with an estimated value of around $2 trillion. There exist in the region of around 300 institutions throughout the world that adopt a financial approach dictated by the principles of Islam. This number has been growing as a result of the financial crash in 2008 where many conventional banks faced liquidity issues; investors disillusioned with the performance and practices of conventional banks increasingly sought to invest their assets with Islamic Finance institutions. However, the fact that only 1% of institutions currently adopts the Islamic Finance approach shows that conventional banking methods are still more popular with investors and institutions alike. Most of the Islamic Finance institutions are based in the Middle East, but there has been a significant increase in Islamic Finance institutions in the main financial centres of this world (London, Shanghai and New York). The following table displays some of the similarities and differences between Islamic......

Words: 590 - Pages: 3

Islamic Finance

...MP A R Munich Personal RePEc Archive The Islamic Inter bank Money Market and a Dual Banking System : The Malaysian Experience Bacha, Obiyathulla I. INCEIF the Global University in Islamic Finance 2008 Online at http://mpra.ub.uni-muenchen.de/12699/ MPRA Paper No. 12699, posted 13. January 2009 / 09:41 The Islamic Inter bank Money Market and a Dual Banking System: The Malaysian Experience. (1st Draft : June 2007) (1st Revision : September,2007) (This revision: March, 2008) Obiyathulla Ismath Bacha Dept. of Business Administration College of Economics and Management Sciences International Islamic University, Malaysia obiya@iiu.edu.my ………………………………………………………………………………………….. The author gratefully acknowledges Rahmatina Kasri for her research assistance, as well as that of participants of the 2nd International Islamic Financial Markets Conference, Bahrain, for the useful comments Abstract This paper examines the operation of an Islamic Inter-bank Money Market (IIMM), within a dual banking system. The paper argues that even though an Islamic money market operates in an interest-free environment and trades Shariah-compliant instruments, many of the risks associated with conventional money markets, including interest-rate risks are relevant. The empirical evidence, based on Malaysian data, points to Islamic money market profit rates/yields that are highly correlated and move in tandem with conventional money market rates. Given the dynamics of fund flows......

Words: 7886 - Pages: 32

Islamic Banking System in Bangladesh

...Department: USB Section: 01 Islamic banking system Letter of Transmittal December 28, 2011 Shahriar Kabir Lecturer Financial Markets and Institutions ULAB Subject: Request to Accept Term Paper regarding “Islamic Banking System” Dear Sir, We are very pleased to submit the term paper on “Islamic Banking System”. We were assigned to prepare and submit this term paper as the partial fulfillment of the course Financial Markets and Institutions (Course Code: Bus 421). We have tried our best to prepare this term paper perfectly. Nevertheless, this paper has been suffered by time and other resource limitation. We will be obliged, if you kindly accept this term paper. We are ready to make you clear regarding any confusion or further clarification from this term paper. Sincerely yours, Nasrin Akter (On the behalf of all the group members) Table of contain Title | Page no | Executive summary ……………………………………....……4Introduction ……………………………………..….………….5History………………………………….…………….…...........5Features of Islamic bank………………………………………..6Who follow……………………………………………………...6Who are the customers ………………………………………….6Principles of Islamic banking……………………………………6Worldwide Islamic banking ……………………………………..7Activities of Islamic Banks ……………………………………...8Financial transaction terminology meaning ………………….…9List of Islamic banks in Bangladesh …………………………...12Market status of Islamic banking in Bangladesh......

Words: 5384 - Pages: 22

Islamic Finance

...an Introduction to Islamic Finance = = = jìÑíá=jìÜ~ãã~Ç=q~èá=rëã~åá `çåíÉåíë= Foreword Some Preliminary Points _ÉäáÉÑ=áå=aáîáåÉ=dìáÇ~åÅÉ= qÜÉ=_~ëáÅ=aáÑÑÉêÉåÅÉ=ÄÉíïÉÉå=`~éáí~äáëí=~åÇ=fëä~ãáÅ= bÅçåçãó= ^ëëÉíJÄ~ÅâÉÇ=cáå~åÅáåÖ= `~éáí~ä=~åÇ=båíêÉéêÉåÉìê= mêÉëÉåí=mê~ÅíáÅÉë=çÑ=fëä~ãáÅ=_~åâë= 6 9 V NM NO NQ NR Musharakah qÜÉ=`çåÅÉéí=çÑ=jìëÜ~ê~â~Ü= qÜÉ=_~ëáÅ=oìäÉë=çÑ=jìëÜ~ê~â~Ü= Distribution of Profit Ratio of Profit Sharing of Loss 17 NV OP 23 24 24 qÜÉ=k~íìêÉ=çÑ=íÜÉ=`~éáí~ä= j~å~ÖÉãÉåí=çÑ=jìëÜ~ê~â~Ü= qÉêãáå~íáçå=çÑ=jìëÜ~ê~â~Ü= Termination of Musharakah without Closing the Business OR OU OU 29 Mudarabah _ìëáåÉëë=çÑ=íÜÉ=jìÇ~ê~Ä~Ü= aáëíêáÄìíáçå=çÑ=íÜÉ=mêçÑáí= qÉêãáå~íáçå=çÑ=jìÇ~ê~Ä~Ü= `çãÄáå~íáçå=çÑ=jìëÜ~ê~â~Ü=~åÇ=jìÇ~ê~Ä~Ü= 31 PO PP PQ PR ÅçåíÉåíë= Musharakah & Mudarabah as Modes of Financing mêçàÉÅí=cáå~åÅáåÖ= Securitization of Musharakah Financing of a Single Transaction Financing of the Working Capital 37 PU 39 42 43 pçãÉ=lÄàÉÅíáçåë=çå=jìëÜ~ê~â~Ü=cáå~åÅáåÖ= Risk of Loss Dishonesty Secrecy of the Business Clients’ Unwillingness to Share Profits House Financing on the Basis of Diminishing Musharakah Diminishing Musharakah for Carrying Business of Services Diminishing Musharakah in Trade RO aáãáåáëÜáåÖ=jìëÜ~ê~â~Ü= 52 54 55 56 RT 59 63 63 Murabahah fåíêçÇìÅíáçå= Some Basic Rules of Sale Bai’ Mu’ajjal (Sale on Deferred Payment Basis) 65 SR 66 70 jìê~Ä~Ü~Ü=......

Words: 61209 - Pages: 245

Islamic Finance

...which investors lose unexpectedly substantial amount of their investments, and financial institutions suddenly lose significant proportion of their value. Financial crises include, among others, stock market crashes, financial bubbles, currency crises and sovereign defaults. of the financial crisis  Causes and Consequences Financial bubbles are usually associated with easy credit, excessive leverage, speculation, greed, fraud and corruption. Easy credit led to a lack of adequate market discipline, which in turn causes excessive and imprudent lending. Causes of financial crisis Description Risk/Consequence Leverage Borrowing to finance investment Bubble that leads to bankruptcy Asset-liability mismatch The disparity between a bank’s deposits and its long term assets leads to the inability of banks to renew short term debt they used to finance long term investments in mortgage securities Bank runs Regulatory failure Improper (insufficient/excessive) regulatory control: -Insufficient regulation: 1) Results in failure of making institutions‟ financial situation publicly known (lack of transparency) 2) Makes it possible for financial institutions to operate without having sufficient assets to meet their contractual obligations. -Excessive regulations that require banks to increase their capital when risks rise leading to substantial decrease in lending when capital is in short supply. -Excessive risk-taking -Financial crisis (of 2008) Potential......

Words: 2509 - Pages: 11

Islamic Finance

...analysis of Mudarabah & a new approach to equity financing in Islamic finance Shaikh, Salman Ahmed International Association of Islamic Banks 01. July 2011 Online at http://mpra.ub.uni-muenchen.de/19697/ MPRA Paper No. 19697, posted 19. September 2011 / 12:03 A Critical Analysis of Mudarabah & A New Approach to Equity Financing in Islamic Finance Journal of Islamic Banking & Finance, ISSN 1814-8042 By Salman Ahmed Shaikh Project Director, Islamic Economics Project islamiceconomicsproject@gmail.com www.islamiceconomics.viviti.com Abstract Financial intermediation serves a valuable purpose, but it can also be structured using equity modes of financing. This can relieve the financee and increase diversity of entrepreneurial undertakings as in debt based commercial financing, there is little room for diversity with obligatory and stipulated servicing of debt. Using Islamic equity modes of financing poses the challenge of the agency problem and moral hazard. The extent of this agency problem in Mudarabah and its impact on economic payoffs between counterparties is analyzed in this study with a simulation model. Based on review of alternate solutions proposed, the author presents two possible covenants which could make Mudarabah mode of financing more acceptable and widely usable in financial intermediation. This would also further the egalitarian objectives of an Islamic economic order. Keywords: Interest free economy, Islamic Economic System, Mudarabah, Agency Problem,......

Words: 5078 - Pages: 21

Islamic Finance

...In the name of Allah, the Most- Merciful, the Very-Merciful Looking for New Steps in Islamic Finance jìÑíá=jìÜ~ãã~Ç=q~èá=rëã~åá Islamic banking industry has grown rapidly during the past three decades spreading its operations in many parts of the globe. Making its first debut in the small Savings Association of Mitghamr (Egypt) in 1963, its strength has now reached over 250 financial institutions operating in more than 40 countries with assets valuing USD 750 billions, and an annual growth rate of 15 per cent. Almost all the giant conventional banks are in queue to establish their Islamic units to capture the new emerging market. This rapid growth of Islamic financial industry is, no doubt, encouraging for those who wished to relieve themselves from the prohibition of interest on the one hand and to remain a part of the modern market economy on the other. Now that a substantial period of more than three decades has passed on the experience of Islamic Banks and Financial Institutions, it is imperative to review what they have achieved so far and what they have missed. It is, no doubt, a great achievement of these institutions that they relieved the Muslims from clear prohibition of riba, and came up with some alternatives that might be adopted in financial market without indulging in interest. In an atmosphere entirely dominated by interest-based transactions, it was really a formidable task. I do not agree with those who criticize them on the basis of utopian idealism,......

Words: 1576 - Pages: 7