Internship Report On

Different Modes of Investment of First Security Islami Bank Limited

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Part: OneIntroductory

Part

Different Modes of Investment of First Security Islami Bank Ltd.

Submitted to:M. MokarromHossain

ProfessorDepartment of Business Administration

Faculty of Business & EconomicsDaffodil International University

Submitted by:Mariam Jahan Nipun

ID No. –111-11-1945Department of Business Administration

Faculty of Business & EconomicsDaffodil International University

Date of Submission06-09-2014

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Dedicated

To

My Beloved Parents

And

My Respected Supervisor

Preface

As a student of business administration, I have completed my internship report in First Security Islami Bank Limited on ''Different Modes of Investment of First Security Islami Bank Limited''. I have tried my level best to collect the information related to study topic and prepared the report within a very short time. That is why there may be some unexpected mistakes in the report. I regret for my mistake in the report.I worked First Security Islami Bank Limited at Topkhana Road Branch. The best feature of my internship program was the access to motivate the hard working team of highly knowledgeable banking professionals. The most important skill I learnt was the ability to work in a team.In this report I am extremely grateful to my supervisor M. MokarromHossain, Professor, Department of Business Administration, Faculty of Business and Economics, Daffodil International University.During my internship period I tried to follow supervisor’s guideline. My practical experience has been upgraded through performing banking institution duties. The internship report has made me perfect and fit for a good bank services performance.

………………………………..Mariam Jahan NipunID NO: 111-11-1945Major in FinanceDepartment of Business AdministrationFaculty of Business and economicsDaffodil International University

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Acknowledgement

It was a great pleasure to prepare internship report on the “Different Modes of Investment of First Security Islami Bank Limited". I would like to give thank and convey my gratitude to my honorable supervisor, M.MokarromHossain, Professor, BBA Department, Daffodil International University, for letting me to prepare this report and I would like to express my sincere appreciation to him for his whole hearted support and guidance.

I am also grateful to the management of First Security Islami Bank Limited for offering me the internship training. My special thanks to (Manager of FSIBL on Topkhana Road branch), and all the Staffs of First Security Islami Bank Limited, Topkhana Road branch who have given me the practical knowledge about the banking operations.

I also owed to each person whom I bothered inside and outside of First Security Islami Bank Limited, Topkhana Road branch in carrying out this report.

…………………………………………..Mariam Jahan NipunID: 111-11-1945Major in FinanceDepartment of Business AdministrationFaculty of Business and EconomicsDaffodil International University

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Letter of Transmittal

Date: 18-07-2014ToM. MokarromHossainProfessorDepartment of Business AdministrationFaculty of Business and EconomicsDaffodil International University

Subject: Submission of internship report on ‘Different Modes of InvestmentofFSIBL’.

Dear Sir,This is my pleasure to submit my internship report on “Different Modes of Investment of FSIBL”. It was a great opportunity for me to acquiring knowledge and experience in respect of the functions, procedures, and operational mechanism of a commercial bank based on Islamic banking principle while working in Topkhana Road Branch of First Security Islami Bank Limited.

I have tried hard to fulfill your expectations by sharing details of each and every topic and avoiding unnecessary amplification of the topics.

Therefore, I will be very much glad to hear from you for further clarification.

Sincerely yours,

…………………………..Mariam Jahan NipunID: 111-11-1945Major in financeBBA ProgramDepartment of Business AdministrationFaculty of Business and EconomicsDaffodil International University

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Letter of Approval

I am pleased to certify that the internship report on “Different Modes of Investment Of First Security Islami Bank Limited "conducted by Mariam Jahan Nipun bearing ID:111-11-1945 of the Department of Business Administration has been approved for presentation and defense/viva-voce under my direct supervisor. Mariam Jahan Nipun worked with First Security Islami Bank Limited as an intern.

The data and the findings presented in the report are the authentic work of Mariam Jahan Nipun. I recommend the report prepared by Mariam Jahan Nipun for Presentation. She bears a good moral character and pleasingpersonality.I wish her all the success in every step of her life.

Supervisor,

………………………………………….M.MokarromHossainProfessorDepartment of Business AdministrationFaculty of Business and EconomicsDaffodil International University

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Declaration

I, Mariam Jahan Nipun, hereby declare that the presented report of internship titled “Different Modes of Investment of First Security Islami Bank Limited” uniquely prepared by me after completion of three months’ work in First Security Islami Bank Ltd.

I also confirm that, the report prepared only for my academic requirement not for any other purpose. It might not be used with the interest of opposite party of the organization.

………………………………………………Mariam Jahan NipunID: 111-11-1945Major in FinanceBBA ProgramDepartment of Business AdministrationFaculty of Business and EconomicsDaffodil International University

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Executive Summary

First Security Islami Bank Limited (FSIBL) started commercial operations October 1999 with authorized capital BDT 1500 million and paid up capital BDT 200 million objective of creating Islamic Shariah based financial products. At present FSIBL is operating with116 branch different areas of the country. In conventional bank the investor is assured of a predetermined rate of interest whereas, FSIBL promotes risk sharing between provider of capital and the user of funds.

FSIBL deposit on Mudaraba (profit sharing) and Al-Wadiah (current account) Basis on Islamic Shariah. The depositor of business partners of its and they share profit and loss of the business. For the better use of the depositor’s fund, FSIBLinvest its funds as per different modes of investment or financing by Islamic Shariah. Most of the investment of FSIBL on the by Bai-mode (buying& selling) and HPSM. The other ideal mode of FSIBL is Musharaka (partnership).

So, overall investment performance of FSIBL is increasing day by day. Because most of the people in our country are religious minded and they want to invest their money according to Islamic Shariah. Moreover, people of all walks of life can easily transact with FSIBL comparing to other commercial private banks in the country.

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Table of ContentsPart: One

Prefatory PartContents Page No.

Cover Page ITitle Page IISubmission IIIDedications IVPreface VAcknowledgement VILetter of Transmittal VIILetter of Approval VIIIDeclaration IXExecutive Summary XTable of content XI- XIII

Part: TwoReport Body

Chapter-1Introductory Part

Contents Page No.

Introduction 01

Origin of the report 02

Significance of the study 03

Objective of the study 03

Scope of the study 04

Methodology of the study 04

Limitations of the study 05

Chapter-2

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Profile Of First Security Islami Bank Ltd.

History of First Security Islami Bank Ltd. 07Islamic Banking 08Mission of FSIBL 08Visions of FSIBL 08Objectives of the FSIBL 21Special features of FSIBL 21Distinguishing of conventional bank &FSIBL 22Management structure of FSIBL 23-24

Chapter-3Report Body

Different Modes Of Investment Of FSIBL

Objectives of Investment 25

Investment procedures of FSIBL 25

Different Modes of Investment ofFSIBL 26

Bai-Mechanism Bai-Murabaha Bai-Muajjal Bai-Salam Bai-Isthisna

27-30

Share Mechanism Mudarabaha Musharaka

31-39

Ijarah Mechanism Hire purchase hire purchases under shirkatulmelk

40-43

Welfare investment scheme of FSIBL 44-46SWIFT 47Mode wise investment 48-50

Investment trend 51

Distributions of investment by area 52

Financial stability of FSIBL 53-57Chapter-4

SWOT Analysis

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SWOT analysis 58-59Chapter-5

Recommendation & Conclusion

Findings 60Recommendation 61Conclusion 62

Part: ThreeAppended part

Contents Page No.Bibliography 64Corporate information at a glance 65Organizational structure 65Annual Report of 2009Annual Report of 2010Annual Report of 2011Annual Report of 2012

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Chapter- I

Introduction

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Chapter- I

Banking plays an important role in the economy of any country. In Bangladesh Muslim constituted more than 80% of its population. These people possess strong faith on Allah and they want to lead their lives as per the constructions given in the holy Quran and the way shown by the prophet Hazrat Muhammad (Sm.). But no Islamic banking system was developed here up to 1983 The Traditional banking is fully based on interest it is commonly meant as commercial banks. But interest is absolutely prohibited by Islam. As a result the people of Bangladesh have been experiencing such a non-Islamic and prohibited banking system against their normal values and faith.

The present world especially the third world is affected by unemployment socioeconomic injustice inflation, inequitable distribution of income and wealth etc. The main aim of traditional banking is to earn profit by borrowing and lending money in exchange of interest. As a result there is an unfair competition among the bankers and among the customers.

Under conventional framework a bank borrows to lend and it mobilizes savings/deposits by borrowing from savers and lends those deposits to productive interest on deposits and advances respectively. The banks generally maintain a difference is known as interest-spread which is the main income of an interest-based bank. In the Islamic banking system the bank receives no interest. In this case Islami bank receives its entire deposits from the investment of the clients on the basis of profit-sharing places it to the actual entrepreneurs on the basis of the profit sharing. So, it is clear that in case of the traditional banking systems, a fixed percentage of interest, irrespective of income earned is paid to the depositors. The depositors of IB are never deprived of excess income, which the bank may make at the end of year. Not only has this traditional bank given fixed interest rate even when they incur operational loss. The critics of Islamic banking system are of the opinion that both are found same in terms of deposits mobilization and advances investment.

Origin of the report

This internship report has been preparing under the internship program, an indispensable part of

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the Bachelor of Business Administration (BBA) program. For the internship purpose, I chose First Security Islami Bank Limited (FSIBL), Topkhana Road Branch hand prepare this report on the investment related activities of the organization.

Significance of the study

FSIBL is the biggest bank in Bangladesh in private sector. There are a few number of private bank that can compete with FSIBL. The banking system aiming to gain the goal of Islamic economy through setting a well-designed Islamic monitory system. Regarding use of money Islam has its clear-cut instruction through some distinctive guidelines. Avoiding interest (Riba) restricting exploitation & speculation etc. are major guidelines in this process. So Islamic banking is doing banking business under Islamic guidelines.

Objectives of the Study

To identify the areas ondifferent modes of investment of FSIBL. To evaluate different investment modes of First Security Islami Bank Limited.

To identify problems related to investment modes and operations of First Security Islami Bank Limited.

To make some recommendations based on findings.

Scope of the Study

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In this report I have focused on all the qualitative that include profiles of FSIBL, investment activities like (trade, leasing, real estate, manufacturing, agriculture, agriculture production etc. or using Shariah expressions Murabaha, Mudaraba, Musharaka, Ijarah, Istisna, etc). And lastly evaluation of investment has been described.

Methodologyof the Study

Methodology is an important part of a study. Methodology refers to the way by which data are collected for preparing any report or study. The report is an exploratory research and for qualitative survey open ended question was ask to the Bank officials.

Sources of Data:

1. Primary Sources:

Officers; Clients of the branch.

2. Secondary Sources: Annual reports of FSIBL Relevant business research books. Internet search Information kept by branch manager, operations manager in their

own files.

Limitation of the Study

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The main limitations of the report are as follows:

Lacks of adequate knowledge about Investment of any organization sufficient records, publications, facts and figures are not available. These constraints narrowed the scope of the real analysis.

For the reason of confidentiality, some useful information cannot be expressed in this report.

Lack of available information about investment operations of FSIBL.

Unavailability of sufficient written documents as required making a comprehensive study.

In many cases up to date information is not published.

Because of the unwell/illness of the busy key persons, necessary data collection became hard.

Lack of experiences has acted as constraints in the way of meticulous exploration on the topic.

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History of First Security Islami bank Ltd.

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Chapter- II Profile of FSIBL

In Muslim countries were awoken by the emergence of islami bank which provided interest free banking facilities. There are currently more than 300 interest free institutions all over the world. Islami bank now a day’s not only operate in almost all Muslim countries but also have extended their wings to the western world to serve both Muslim and non-Muslimcustomers. In case of Islamicbanking, the establishment of Mitghamar local saving bank in 1963 is said to be a milestone for modern islami banking. The history of islami banking can nevertheless be traced back to the birth of Islam.

First Security Islami Bank Ltd. (FSIBL) is a financial institution operating based on the principles of Islamic Shariah. FSIBL was incorporated in Bangladesh on 29 August 1999 as a banking company under Companies Act 1994 to carry on banking business. It obtained permission from Bangladesh Bank on 22 September 1999 to commence its business.First Security Islami Bank Ltd. provides all kinds of commercial banking services to its customers through its branches in Bangladesh. The Bank carries banking activities through its 92 branches in the country. The commercial banking activities of the bank encompass a range of services, including accepting deposits, making loans, discounting bills, conducting money transfer and foreign exchange transactions, and performing other related services, such as safe keeping, collections and issuing guarantees, acceptances and letter of credit. The Bank’s product and services include deposit scheme, investment scheme, online banking, short message service (SMS) banking, automated teller machine (ATM) banking, utility bills and locker services. First Security Islami Exchange Ltd. Is a wholly owned subsidiary of the Bank.The Bank offers a wide range of banking services through its 116 branches in the country, including accepting deposits, making loans, discounting bills, conducting money transfer and foreign exchange transactions, and performing other related services such as safe keeping, collections and issuing guarantees, acceptances and letter of credit.

Islamic Banking

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First Security Islamic bank is a financial institution whose status, rules, and procedures expressly state its commitment to the principle of Islamic shariah and to the banning of the receipt and payment of interest on any of its operations.-OICAnother one is-‘Islamic bank is essentially a normative concept and could be defined as conduct of banking in consonance with the ethos of the value system of Islam.’

Mission of FSIBL

The banks operate on Islamic principles of profit and loss sharing, strictly avoiding interest, which is the root of all exploitation and is responsible for large-scale inflation and unemployment.The mission of FSIBL is to establish Islami 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 through diversified investment operations particularly in the priority sectors and less developed areas of the country. To encourage socio-economic uplift and financial services to the low-income community particularly in the rural areas.

Visions of FSIBL

The vision of First Security Islami Bank Bangladesh Limited is to always strive to achieve superior financial performance, be considered a leading Islamic bank by reputation and performance.Their goal is 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 systems.

They will try to encourage savings in the form of direct investment. They will also try to encourage investment particularly in projects which are more likely

to lead higher employment.

Objectives of Islamic bank

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It is a golden desire of every Muslim that his social and political lives should be   in accordance with the divine guides prescribed in the holy Quran and the Sunnah. In the same tune of aspiration as above, he desires to follow a purified life in financial and business life. So, the objectives of the Islamic banking may be derived from the broader objectives of the Islamic economy. Morespecially the objectives of Islamic banking when viewed in the context of its role in the economy are listed as following:

To offer contemporary financial services in conformity with Islamic shariah. Replacement of interest by profit sharing. Creation of money through a process of investment, rather than through process

of lending. Social welfare state nature. To help ensure equitable distribution of income.

Special features of the bank

First Security Islami Bank Limited (FSIB) was Establish in Bangladesh on August 29 1999 as a banking company under Companies Act 1994.On September 22, 1999. FSIBL obtained permission from Bangladesh Bank to commence its business. It is one of the Shariah based interest-free banking South-East Asia.The bank is committed to run all its activities as per Islamic Shariah. FSIBL through its steady progress and continuous success has, by now, earned the reputation of being one of the leading private sector banks of the country. The distinguishing features of FSIBL are as under:All its activities are conducted on interest-free system according to Islamic Shariah.

All activities are conducted on interest free system in accordance with Islamic Shariah principles

Investment is made through different modes as per Islamic Shariah.

Investment-income of the bank is shared with the Mudaraba depositors according to a ratio to ensure a reasonably fair rate of return on their deposits.

Its aims are to introduce a welfare-oriented banking system and also to establish equity

and justice in the field of all economic activities.

Distinguishing features of Conventional Bank and First Security Islami Bank Limited:

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The distinguishing features of conventional banking and FSIBL are shown below:

Conventional Banks FSIBL

The functions and operating modes of conventional banks are based on manmade principles.

The functions and operating modes of FSIBL is based on the principles of Islamic Shariah.

The investor is assured of a predetermined rate of interest.

It promotes risk sharing between provider of capital(investor) and the user of funds(entrepreneur)

It aims at maximizing profit without any restriction.

It also at maximizing the profit but subject to shariah restriction.

It does not deal with Zakat. In the FSIBL system, it has become one of the service oriented functions of the IBBL to collect and distribute Zakat.

It can charge additional money (compound rate of interest) in case of defaulters.

FSIBL has no provision to charge any extra money from the defaulters.

Lending money and getting it back with interest is the fundamental function of the conventional banks.

Participation in partnership business is the fundamental function of FSIBL.

Conventional banks provide finance by using the followingTechniques-a)Loan

b)Cash Creditc)Overdraftsd)Purchase and discounts billse)Advance for hire bills

There are seven Islamic financingmodes practiced by the most of theIslamic banks of the world-

a) Bai-Murabahab) Bai-Muajjalc) Bai-salamd) Ijarahe) Qardhasanaf) Mudarabag) Musharaka

1.1 Organ Gram of First Security Islami Bank Limited:

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Executive Committee of the

Board Audit Committee

Shari’ah CouncilBoard Secretariat

1.2 Managerial Hierarchy of the Branch:

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Executive Committee of the

Board Audit Committee

Shari’ah CouncilBoard Secretariat

Executive Vice President (EVP) - 1 Person

First Assistant Vice President (FAVP) - 1 Person

Senior Executive Officer (SPO) - 3 Persons

Principal Officer (PO) - 1 Person

Senior Officer (SO) - 3 Persons

Officer - 2 Persons

Junior Officer - 1 Person

Assistant Officer - 6 Persons

Trainee Assistant Officer - 4 Persons

I worked with these persons

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Chapter- III Report Body

Objectives of InvestmentInvestment Procedures of FSIBL

Different Modes of Investment of FSIBLBai-Mechanism

Share MechanismIjarah Mechanism

Welfare Investment Scheme of FSIBLSWIFT

Mode Wise InvestmentInvestment Trend

Distribution of Investment by AreaFinancial Stability of FSIBL

Objectives of Investment

The objectives of investment operations of the Bank are:

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

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

To ensure mutual benefit both for the bank and the investment-client by professional appraisal of investment proposals, judicious sanction of investment, close and constant supervision and monitoring thereof.

Investment Procedures of FSIBL

There are three types of investment Mechanism. Every mechanism of investment is strictly followed investment procedures. These are as follows-

Selection of the client Application stage Appraisal stage Sanctioning stage Documentation stage Disbursement stage Monitoring and recovery stage

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Modes of finance followed by FSIBL

Investment is the action of deploying funds with the intention and expectation that they will earn a return for their owners of a fund can deploy it through real investment or financial investment. When resources are spent to purchase fixed and current assets for use in a production process for trading purpose, then it can be termed as real investment. For example, deposit of money with a bank, purchase of Mudarabah Savings Bond or share of a company. Financial investments ultimately takes form of real investment as it is meant for so. Since hoarding is condemned by Islam and a 2.5 percent annual tax (Zakat) is imposed on savings, the owner of a fund, if he is unable to make real investment, has no option but to invest his savings as a financial investment. Modes of finance followed by First Security Islami bank Limited are exercised under three principles:

1. Bai- (Buy & Selling) Mechanism

2. Sharing (Profit & Loss) Mechanism

3. Ownership Sharing Mechanism

Modes of finance under three principles can be presented by using chart as follows-

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BAI-MECHANISM:BAI- MURABAHA

Meaning

The terms 'Bai-Murabaha' have derived from Arabic words Bai and Ribhun. The word Bai means purchase and sale and the words 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 permissible under Islamic Shariah and the Law of the land to the Buyer at a cost plus agreed profit payable on cash or on any fixed future date in lump- sum or by installments. The profit marked-up may be fixed on lump sum or in percentage of the cost price of the goods.

Features of Bai-Murabaha

It is permissible for the client to offer an order to purchase particular goods by the Bank dealing its specification and committing himself to buy the same from their bank on Murabaha.Cost-plus agreed upon profit.

It is permissible to make the promise binding upon the client to purchase from the Bank that is he is to either satisfy the promise or to indemnify the damages caused by breaking the promise without excuse.

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

It is also permissible to document the debt resulting from Bai-Murabaha by a Guarantor or a mortgage or both like any other debt is permission. Mortgage/ Cash Security may be obtained prior to the signing of the Agreement or at the time of signing the Agreement.

Stock and availability of goods is a basic condition for signing a Bai-Murabaha agreement. Therefore, the Bank must purchase the goods as per specification of the client to acquire ownership of the same before signing the Bai-Murabaha agreement with the client.

Application of Bai-MurabahaMurabaha is the most frequently used form of finance in FSIBL throughout the world. It is suitable for financing the different investment activities of customers with regard to the manufacturing of finish goods, procurement of raw materials, machinery, and other plant and equipment purchases.

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BAI-MUAJJAL (Deferred sale)

Meaning

The terms "Bai" and "Muajjal" have been derived from Arabic words 'Bai' and 'Ajal'. The word Bai means purchase and sale and the word 'Ajal' means a fixed time or a fixed period. "Bai-Muajjal" means sale for which payment is made at a future fixed date or within a fixed period. In short, it is a sale on Credit.

Definition

The Bai-Muajjal may be defined as a contract between a Buyer and a Seller under which the seller sells certain specific goods (permissible under Shariah and law of the country), to the Buyer at an agreed fixed price payable at a certain fixed future date in lump sum or within a fixed period by fixed installments. The seller may also sell the goods purchased by him as per order and specification of the buyer.

Features of Bai-Muajjal

It is permissible for the Client to offer an order to purchase by the bank particular goods deciding its specification and committing him to by the same from the bank on Bai-Muajjal I.e. deferred payment sale at fixed price.

It is permissible to make the promise binding upon the Client to purchase from the bank, i.e. he is to either satisfy the promise or to indemnify the damages caused by breaking the promise without excuses.

It is permissible to take cash/ collateral security to guarantee the implementation of the promise

It is also permissible to document the debt resulting fromBai-Muajjal by a Guarantor, or a mortgage or both like any other debt. Mortgage/ Guarantee/ Cash security may be obtained prior to the signing of the Agreement or at the time of signing the Agreement.

Stock and availability of goods is a basic condition for signing a Bai-Muajjal Agreement. Therefore, the Bank must purchase the goods as per specification of the client to acquire ownership of the same before signing the Bai-Muajjal Agreement with the Client.After purchase of goods the bank must bear the risk of goods until those are actually delivered to the Client.

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The Bank must deliver the specified goods to the Client on specified date and at specified place of delivery as per contract.

The Bank may sell the goods at a higher price than the purchase price to earn profit. The price once fixed as per agreement and deferred cannot be further increased. The Bank may sell the goods at one agreed price, which will include both the cost price

and the profit. Unlike Bai- Murabaha, the bank may not disclose the cost price and the profit mark- up separately to the Client.

BAI- SALAM (Advance payment)

Meaning

The terms “Bai” and “Salam” have been derived from Arabic words. The words “Bai means “sale and purchase” and the word “Salam” means “Advance”. “Bai-Salam” means advance sale and purchase.

Definition

It is a sale in which an advance payment is made by the buyer, but the delivery is delayed to an agreed date. In the Bai-Salam, a financial transaction happens in advance in cash as a price of commodity whose delivery will be in a future date. It means deferred is the commodity sold (debt in kind) and price of the commodity described is to be aid immediately in advance.

Feature of Bai-salam

Bai-Salam is a mode of finance allowed by Islamic Shariah in which commodity or product can be sold without having the said commodity or product either in existence or physical possession of the seller. If the commodity is ready for sale Bai-Salam is not allowed in Shariah. Then the sale may be done either in Bai-MurabahaorBai-Muajjal mode of finance.

Application of Bai-Salam

Salam sales are frequently used to finance the agriculturalindustry. Bank advance cash to farmers today for delivery of the corp. during the harvest season. Thus banks provide farmers with the capital necessary to finance the cost of producing a crop. Salam sale are also used to finance commercial and industrial activities.

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ISTISNA'A SALE

Definition

Istisna'a sale is a contracting which the price is paid in advance at the time of contract and the object of sales manufactured and delivered later A manufacturer, artist or craftsman may take orders, with or without advance payment, to make articles himself or hire labor to do so.

The majority of the jurists consider Istisna's as one of the divisions of Salam, Therefore, It is subsumed under the definition of Salam, But the Hanafie school of jurisprudence makes Istisna's as an independent and distinct contract, The jurists of the Hanafie school have given various definitions to Istisna'a some of which are "That it is a contract with a manufacturer to make the something" and It is a contract on a commodity on liability with the provision of work" The purchasers called Mustasnia  contractor and the seller is called "sania" maker manufacturer and the thing is called 'masnooa' manufactured, built, made.

Features of Isthisna

It is permissible for the bank to buy a commodity on Istisna'a contract then sell it after receipt for cash installed or deferred price.

It is also permissible for the bank to enter into Istisna'a contract in the capacity of seller to

the who demand a purchase of a particular commodity and then straw a parallel istisna's contracting the capacity of a buyer with another partition cake manufacture the -commodity agreed upon in the first contract.

The first Istisna'a can be immediate or deferred (the payment) the payment in the second Istisna'a can be each or deferred stated blow are the practical steps which the bank applies the modes of Istisna'a sale, parallel Istisna'a with reference to the non-existence of any legal relation or financial obligation between.

The purchaser requesting Istisna'a (the end use) in the first contract, and

The (maker), manufacturer, (the builder), (the seller) who manufactures the article in accordance to the parallel Istisna'a contract.

So any disagreements that may arise are settled under each contract separately according to the provision therein.

Application of Istishna

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The isthmians contract allows FSIBL to finance the public needs and the vital interest of the society to develop the Islamic economy in accordance with Islamic teachings.Isthisna contracts are used to finance high technology industries such as the aviation, locomotive and ship building industries. It is also applied in the construction industry such as apartment building, hospitals, schools, and universities to whatever that makes the network for modern life.

Share Mechanism:

MUDARABAH

Definition

It refers to a contact between two parties in which one party supplies capital to the other party for the carrying on of some trade on the condition that the resulting profits be distributed in a mutually agreed proportion while all loss is borne by the provider of the capital. Mudarabah is also known aQirad and Muqaradah

Mudaraba is a contract of those who have capital with those who have expertise where the first party provides capital and the other party provides the expertise with the purpose of earring "halal" (Lawful) profit which will be devised between them in ration agreed upon. This mode serves the business interest of the capital owner and the mudharib (agent).

The capital owner may not have the opportunity or the experience to make turn over capital and trade with it. On the other hand, the agent (the Mubarib) May not have the adequate capital to put to materialize his experience, such lacking of both parties bring them into a contract of Mudarabah. It had certain steps to be followed. The following is the steps of the Mudarabah contract.

Steps of Mudarabah

1. Establishing a Mudharabah Project: The bank- the bank provides the capital as a capital owner.

The Mudharib- provides the effort and expertise for the investment of capital in exchange of a share in profit agreed upon.

2. The Results of Mudharabah: The two parties calculate the earrings and divide the profits at the end of Mudharabah; this can be done periodically in accordance with the agreement along with observance to legal rules.

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3.Payment of Mudharabah Capital: The banks recovers the Mudharabah capital it contributed before dividing the profits between the two parties because profit is protection to capital in case of agreement to distribute profits periodically before the final settlement it must be on account until the security of capital is assured.

4. Distribution of wealth resulting from Mudharabah: In case of loss, the capital owner (the bank) bears the loss. In the event of profits, they are divided between the two parties in accordance with the agreement between them with observance to the principle "profit is protection to capital"

There are some legal rules for Mudharabah Mode of Finance, which are as follows:

Rules of Mudharabah

1. Capital Must be Specific: It is a condition in Mudharabah that capital must be specific or its return to owner, so its amount must be known at the contract, and because the uncertainty about the amount of capital necessarily leads to uncertainty about the amount of profit, which represents an increment to capital.

2. Capitalmustbe in Currency: it is a condition that capital must be a currency in circulation. However, It can be merchandise only in condition that it is evaluated at the contract and the agreed upon value becomes the capital of Mudharabah.

3. Capital Not a Liability debt on Mudarib: It is a condition that in capital must not be a liability debt on the Mudharib, because the Mudharib is a trustee and in respect to the debt, it is a guarantor who can only be absolved after payment.

4. Mixing of Private Capital Permissible: It is permissible for a mudharib to mix its private capital with the capital of the Mudharabah, thus it becomes a partner, as well, and its disposal of capital on the basis of Mudharabah is permissible.

5. Delivery of Capital to Mudarib: It is a condition that the capital of Mudharabah must be delivered to the   mudharib because not delivering it imposes constrictions on the withhold  it imposes constrictions on the mudharib and restricts its power disposal. Some of the jurists permit the capital owner to withhold capital and release it gradually according to the needs of the mudharib since Mudharabah adjudges unrestricted disposal but not deliver.

6. Imposition of Restriction on Mudarib: It is permissible to impose restrictions on the mudharib if the restriction is beneficial and does not constitute a constriction on the agent to

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attain the profit required and is not counterproductive to the purpose of the Mudharaba if the mudharib violates the restriction contravenes the beneficial condition, it becomes a usurper and guarantees capital to the capital owner.

7. Hiring Helping Hands ByMudarib:  It is permissible for the Mudharib to hire assistance in difficult work, which it is unable to do by itself. Recourse shall be made to prevailing custom to determine that.8. Disposal of the Mudharib: The disposal of the Mudharib is confined to what is conducive to the Mudharabah. It must lend or donate nothing of the Mudharabah capital It is also not allowed to purchase, for Mudharabah with more than its capital, nor is it allowed to go into partnership with others using the Mudharabah capital. All of the above is permissible if the capital owner consents and authorizes the agent to use its discretion.

9. No Security or Guarantee except Negligence: No security on the Mudharib shall be stated in the Mudharabah contract except in case of negligence or trespass because the mudharib is a trustee on what is in its hold, capital is judged as a deposit. It is permissible to take a surety mortgage from the mudharib to guarantee the payment in case of negligence or trespass or violation of conditions, but it is impermissible to take that as a guarantee to capital or profit, because it is impermissible for the Mudharib to guarantee neither Capital nor profit.

10. Profit Sharing as per Agreed Ratio: It is a condition that profit should be specific because it the subject of the contract and being unknown abrogates the contract. The contraction parties should stipulate in the contract the profit shares (in percentage) for each one. It is impermissible to stipulate a lump sum as profit to either party so as not to lead to the termination of profit by one of them. Profit in Mudharabah is distributed according to the agreement of the two contraction parties. They may agree on specific rations, be more or less.

11. Loss to be borne by the Owner of the Capital: It is a condition that the capital owner bears alone the loss (the Mudharib bears nothing of it) because loss is a decrease in capital and capital belongs to the owner.

12. Profit is Protection to Capital: The Mudharib shall collect its share of the profit only after obtaining the permission of the capital owner. Also the Mudharib is entitled to collect its share of profit only after capital is recovered , because the principle says "profit is protection to capital" In case of temporary division of profit before the final settlement, and the Mudharabah is contenting, the loss incurred later shall be made good from the profit distributed.

13. Recovery of Capital: The ownership of the mudharib becomes secure after the liquidation of the Mudharabah and the capital owner recovered its capital. Some of the Jurists hold the view that auditing is like division and possession. If two parties reach a final settlement after the

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liquidation of the assets and leave the Mudharabah, it is considered to be a new mudharabah and neither one makes good the loss of the other.

14. Not a Binding Contract:Mudharabah is terminated if one of the two parties rescinds it because it is an optional not a binding contract. Some of the jurists hold the view that Mudharabah is binding and it cannot be rescinded if the Mudharib commences work.

MUSHARAKA (Partnership)

Meaning and definition

The word Musharaka is derived from the Arabic word Sharikah meaning partnership. Islamic jurists point out that the legality and legality and permissibility of Musharakah is based on the injunctions of the Holy Quran, Sunnah, and Ijma (consensus) of the scholars. It may be noted that Islamic Banks are inclined to use various forms of Shariakt- al -Inan because of its built on flexibility. At an Islamic bank, a typical Musharakah transaction may be conducted ob the following manner.

One two or more entrepreneurs approach an Islamic Bank for the finance required for a project. The bank along with other partners provides complete finance. All partners, including the bank have the right to participate in the project. They can also waive this right. The profits are to be distributed according to an agreed ratio, which need not be the same as the different partners have provided the finance for the project Musharakah may be of two types:

1. Permanent and

2. Diminishing Musharaka which have been discussed below:

a. Permanent Musharakah:in this case the bank participates in the equity of a company and receives an annual share of the profits on a pre-rate basis. The period of termination of the contract is not specified. This financing technique is also referred to as continued Musharakah.

b. Diminishing Musharakah:Digressive or Diminishing Muaharakah is a special form of Musharakah which ultimately culminates in the ownership of the asset or the project by the client. It operates in the following manner.

The bank participates as a financial partner, in full or in part, in a project with a given income

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forecast. An agreement is signed by the partner and the bank through which the bank receives a share of the profit as a partner. However, the agreement also provides payment of a portion of the net income of the net income of the project as repayment of the principal financed by the bank. The partner is entitled to keep the rest. In this way, the full owner.

Definition of permanent Musharakah

The contributions of the partners under this mode may be equal or unequal ratios of capital to establish a new income-generating project or to participate in an established one, whereby each participant owns a share in the capital structure permanently and deserves his share of the profit income. Such a partnership originally is intended to continue up to the dissolution of the company. But one can sell his share in the capital to withdraw from the project.The Islamic Banks can use the mode of Permanent Musharakah in many income-generating projects. They can finance their customers, for an intended projects, with pare of the capital required for the project in exchange of a share of the output as they may agree upon. They can also mostly leave the responsibility of management of the customer- partner and retain the right of super vision and follow up.

It follows from the above discussion   that there are three steps of permanent Musharakah which are given below:

1. Partnership in Capital:The bank tenders part of the capital required in its capacity as a partner and authorizes the customer partner to manage the project.

The partner tenders part of the capital required for the project and be a trustee on what he holds from the bank funds.

2. Results of the projects:The work in the project is for the growth of capital. The project may achieve positive or negative results.

3. The Distribution of wealth accrued from the project:In case of loss, each partner bears part of the loss proportionate to its share in capital. In case of earning profits, they are divided between the two parties (the bank and the partner) in accordance with the agreement.Rules for Permanent Musharakah

1. Capital should be Specific: It is a condition that the capital of the company is specific, existent and under disposal. It is invalid to establish a company on non-existent fund of debt, for the purpose of profit,

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2. Share of Equity: It is not a condition that partners have equal shares in capital, though variation in shares is permissible. It is subject to agreement.

3. Nature of Capital: It is a condition that the capital of the company is money and valuables. Some of the jurists permit participating with merchandise on condition it is evaluated in the contract and the value agreed upon becomes the capital of the company.

4. Active Participation of Partners: It is impermissible to impose conditions forbidding one of the partners from work, because the company is build on and each partner implicitly permits and gives power of attorney to the other partner to dispose of and work wit capital but it is permissible for one partner to singly work in the company by mandate of other partners.

5. No Security for Profit: A partner is a trustee on the funds in his hand from the company and he guarantees only in case of trespass or negligence and it is permissible to take a mortgage or a guarantee against trespass and negligence but it is impermissible to take security or profit or capital.

6. Ratio of Profit Prefixed: It is a condition that profit for each partner must be known to avoid uncertainty and it must be a prorate ratio to all partners and must not be a lump sum, because this contravene the requirement of partnership.

7. Variation in Share of Profit Permissible: In Principe, profit must be divided among partners in ratios proportionate to their shares in capital but some of the jurists permit variation in profit shares whereupon it is determined by agreement for one of the partners may be more dexterous and more diligent and may not agree to parity, so variation in profit becomes necessary.

8. Not a binding contract:  In principle, partnership is a permissible and not a binding contract, so it is admissible for any partner to rescind the contract whenever it wishes provided that this occurs with the knowledge of the other partner or partners, because rescinding the contract without the knowledge of other partners prejudices their interests. Some of the jurists are of the view that the partnership contract is binding up to the liquidation of capital or the accomplishment of the job accepted at the contract.

Application of permanent Musharakah

Permanent Musharakah is helpful for large amount of investment in modern economic activities the Islamic banks can use Musharakah to a new or established firm by using permanent Musharakah as a mode of investment.  The Islamic banks can make sufficient fund available to

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the customer for the long term. The Islamic banks may become active partners in determining the methods of production cost control, marketing etc. and to achieve the objectives of the establishment. They can also supervise and follow up the overall activities of the firm. The Islamic banks can share profit or loss with the (partners) clients in all situations of the firm.   

Definition of diminishing Musharakah

Diminishing Musharaka is an intention from the very beginning not to stay in and continue the partnership up to the liquidation of the company. The Islamic bank can give the other partner the right to purchase portion of the bank on the ownership [the form for full payment at a time or by installment basis as per agreement with the partners (the client).The bank gradually can relinquish share to the partner, in exchange the partner pays the price to the bank periodically during a reasonable period to be agreed upon. After the discharge, the bank withdraws it claims from the firm and it becomes the property of the partner. Decreasing partnership is a mode innovated by the Islamic banks. It differs from the partnership. Those are mentioned below:Steps of diminishing partnership:

1. Participation in capital: The bank-tenders part of the capital required to the project In its capacity as a participant and agrees with the customer partner on a specific method of selling its share in capital gradually.The partner-tenders part of the capital required to the project and be a trustee in what is in its hands of the bank funds.

2. Results of the projects:  The purpose of the work in the project is the growth of capital. The results of the project may be positive or negative.

3. The distribution of the wealth accrued from the projects: In the event of loss each partner bears its share in the loss in a ratio proportionate to its share in capital. In case of earning profits, are detonated between the two partners (the bank and the customer) in accordance with the agreement. The shares the sale must be concluded as a separate deal with no connection to the contract of the company.

4. The Bank sells its Share In Capital: The Bank- expresses its readiness, its readiness, in accordance with the agreement, to sell a specific percentage of its share in capital. The partner- pays the price of that percentage of capital to the bank and the ownership is transferred to the partner.

This process continues up to the end of the partnership of the bank in the project and that's by

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gradually transferring the ownership of the project customer/partner. In this way the bank has its principal returned plus the profit earned during the partnership advice versa.

In the first Conference of the Islamic Banks in Dubai, the conferees studied the topic of partnership ending with ownership  (decreasing partnership) and they decided that this mode can be applied in one of the following (ways) forms.

The First Form: The Bank agrees with the customer on the share of capital and the conditions of partnership. The Conference has decided that the bank should sell its shares to the customer after the completion of the partnership and in an independent contract where the customer has the same provision.

The Second Form: The bank agrees with the customer in participating in the total or partial capital of a firm of prospective earnings on the basis of the agreement with the right to relating the remainder of the income for the purpose of paying the principal of what the bank has contributed.

The Third Form: The shares of each partner (the bank and the partner) in the company are determined as stocks co comprising the total value of the asset (real estate) Each partner, (the bank and the customer) gets its share of the earnings accrued from the real property, If the partner so wishes it can each year purchase a cretin number of the shares owned by the Bank, The shares possessed by the bank shall be decreasing until the partner becomes the sole owner ofthe real property.

Rules for diminishing Musharakah

In addition to all the legal rules that apply to the permanent partnership which also apply to the decreasing partnership, the following matters must the observed:

1. Participation and Sharing profit and Loss: It is a condition in the decreasing partnership that it shall not be a mere loan financing operation, but there must be real determination to participate and all the parties shall share profit or loss during the period of the partnership.

2. Bank’s Ownership and Right to Management: It is a condition that the bank must completely own it, share in the partnership and must have its complete right in management and disposal. In case the bank authorizes its partner to perform the work, the bank shall have the right of supervision and follow up.

3. Redeeming Bank's Share of Capital: It is impermissible to including the contract of decreasing partnership a condition that adjudges the partner to return to the bank the total of its

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shares in capital in assertions in addition to profits accruing from that share, because of resemblance to RIBA (usury).

4. Bank’s Promise to Sell It Share to the Partner: It is permissible for the bank to offer a promise to sell its shares in the company to the partner if the partner pays the value of the shares. The sale must be concluded as a separate deal with no connection to the contract of the company.

Hire purchase Under ShirkatulMelk

Meaning and DefinitionHire purchase Under ShirkatulMelk is a special type of contract which has been developed through practice. Actually, it is a synthesis of three contracts:

Shirkat

Ijarah and

Sale

There may be defined as follows:

ShirkatulMelk

Shirkatul means partnership ShirkatulMelk means share in 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 ShirkatulMelk contract.

Ijarah

The term Ijarah has been derived from the Arabic words ‘Air’ and ‘Uirat’ 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 Hire 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 assert is hired out by the Hiree to a Hirer against fixed rent or rentals for a specified period.

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Element of Ijarah

According to the majority of Fuqaha, there are three general and six detailed elements of Ijarah.The wording: this includes offer and acceptance.

a) Contracting parties: this includes a Hiree, the owner of the property, and a Hirer, the party that benefits from the use of the property.

Subject matter of the contract: this includes the rent and the benefit.

b) The Hire: the individual or organization hires/rents out the property of service is called the Hiree.

c) The Hirer: the individual of organization hires / takes the hire of the property or service against the consideration, rent/ wages/ remuneration is called the Hirer.

d) The benefit / asset: the benefit, which is hired/, rented out is called the benefit.

e) The rent: the consideration either in monetary terms or in kinds fixing quantity of goods/money to be paid against the benefit of the asset or service of the asset is called the rent.

Sale

This is a sale contract between a buyer and a seller under which the ownership of certain goods or asset is transferred by seller to the buyer against agreed upon price paid / to be paid by the buyer.

Thus, in Hire Purchase under ShirkatulMelk made both the bank and the client supply equity in equal or unequal proportion for purchase of an asset like land, building, machinery, transport etc. Purchase the asset with that equity money, own the same jointly; share the benefit as per agreement and bear the loss in proportion to their respective equity. The share part or portion of the asset owned by the bank is hired out to the client partner for a fixed rent per unit of time for a fixed period. Lastly the bank sells and transfers the ownership of its share/ part/ portion to the client against payment of price fixed for that    part either gradually part by part or in lump sum with in the hire period or after the expiring of the hire agreement.

Important features

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1. In case of HPSM transaction the asset/ property involved is jointly purchased by the Hiree (Bank) and the Hirer (Client) the Hiree and the Hirer become co-owner of the asset under transaction in proportion to their respective equity participation.

2. In HSPM agreement, the exact ownership of both the Hire and Hirer must be recognized.

3. Under this agreement, the Hirer becomes the owner of the benefit of the asset but not of the asset itself, in accordance with the specific provisions of the contract, which entitles the Hire, is entitled for the rentals.

4. As the ownership of hired portion of the asset lies with the Hiree and rent is paid by the Hirer against the specific benefit, the rent is not considered as price or part of price of the asset.5. In the HPSM agreement the Hiree does not sell or the Hirer does not purchase the asset but the Hire promise to sell the asset to the Hirer part by part only.

6. The promise to transfer legal title by the Hire and 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.

7. As soon as any part of Hire’s ownership of the asset is transferred to the Hirer that becomes the property of the Hirer and hire contract for that share/part and entitlement for rent there of lapses.

8. In HPSM, the shirkatulmelk contract is affected from the day the equity of both partied deposited and the asset is purchased and continues up to the day on which the full title of Hiree is transferred to the Hirer.

9. Effectiveness of the sale contract depends on the actual sale and transfer of ownership of the asset by the Hiree to the Hirer.

10. Under this agreement the bank acts as a partner, as a Hire and at last as a seller; on the other hand the client acts as a partner, as a Hirer and lastly as a purchaser.

11. Ownership risk is borne by both the Hire and Hirer in proportion to their retained ownership or equity.

12. The Hirer cannot, without obtaining prior written permission of the Hire make any changes in the exact item of the hire, or remove it from its place of installation and transfer into Location.13. HPSM transaction facilitates the client to get benefit from the hired asset in exchange of rental and also to become full owner of the asset by purchasing it part by part.

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14. The Hirer to secure the Bank (the Hire) will pledges hypothecate or mortgage his portion or share      in the asset and or any other asset of his own or third party guarantor to the Bank to fulfill his all liabilities/commitments including the accrued rental, if any.

Rules1. It is a condition that the subject of the contract and the asset should be known

comprehensively.2. It is a condition that the asset to be hired must not be a fungible one which can not be used

more than once or in other words the asset must be a non-fungible one which can be utilized more than once or the service of which can be separated from the asset itself. it is a condition that the subject of the contract must actually and legally be attainable.

3. It is a condition that the Hirer shall ensure that he will make use of the asset as per provisions of the Agreement.

4. It is a condition that the Hirer shall ensure that he will make use of the asset as per provision of the agreement.

5. The hire contract is permissible only when the asset and the benefit derived from it is with in the category as per Islamic Shariah.

6. In a hire contract, the period of hire and the rental to be paid per unit of time be clearly stated.

7. Everything that is suitable to be considered a price, in a sale, can be suitable to be considered as rental in a hire contract.

8. It is permissible to advance, defer or install the rental in accordance with the agreement.9. It is permissible to make the Hirer to bear the cost of ordinary routine maintenance, because

this cost is normally known and can be considered as part of the rental.10. If the hired asset is damaged or destructed by the act of Allah and if the Hire offers a

substitute with the same specifications agreed upon in the hire contract the contract does not terminate.

11. Under HPSM agreement, both the Hire and the Hirer must pay their respective equity as agreed upon to purchase the demised asset under joint ownership.

12. Ownership of the asset of both the Hire and the Hirer should be recognized as per law of the land.

Products under Investment Scheme: Investment /Deployment of Funds

o Bai-Murabaha (Deferred Lump Sum /Installment Sale)o Bai-Muajjal (Deferred Installment /Lump Sum Sale)

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o Ijara (Leasing)o Musharaka (Joint-Venture Profit-Sharing)o Mudaraba (Trustee Profit-Sharing)o Bai-Salam (Advance Sale & Purchase)o Hire-Purchaseo Direct Investmentso Post Import Investmento Purchase & Negotiation of Export Billso Inland Bills Purchasedo Murabaha Import Billso Bai-Muajjal Import Billso Pre Shipment Investmento Quard-ul-Hasan (Benevolent Investment)

Letter of Guaranteeo Tender Guaranteeo Performance Guaranteeo Guarantee for Sub-Contractso Shipping guaranteeo Advance Payment guaranteeo Guarantee in lieu of Security Deposito Guarantee for exemption of Customs Dutieso Others

Letter of Credit (L/C) / Back to Back Letter of Credit (L/C) Specialized Schemes

o Consumer Investment Schemeo SME Investment Schemeo Lease Investment Schemeo Hire Purchaseo Earnest Money Investment Schemeo Mortgage Investmento Employees House Building Schemeo ATM, VISA Investment Card, EEF, etc.

SWIFTSociety for Worldwide Inter-Bank Financial Telecommunication (SWIFT) is a bank owned co-

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operative serving the financial community worldwide. The SWIFT Transport Network (STN) is a dedicated global network for secure communication between SWIFT Customers. SWIFT supports the financial data communication and processing needs of financial institutions, through a range of financial messaging services and value-added processing, as well as, access through the STN and interface and application software. In short SWIFT is a pioneer in the automation of the global financial industries.

Mode wise Investment

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In Bangladesh perspective Bai-Murabaha mode is most popular mode.FSIBL makes investment against it by taking charge and mortgage documents.HPSM is proanother important mode of investment. After the payment here customer gets the right to be the owner of the property. From the bellow table of 5 years mode wise investment shows that Bai-Murabaha and HPSM is highest investment and Quard is average of total investment of FSIBL.Mode wise investment of CY2009-2010&2011, and CY2012-2013 are given bellow:

Mode wise Investment of 2009-2010 &2011

Modes

2009 2010 2011

Amount% of invest. amount

% of invest. Amount

% of invest.

BaiMurabaha

2942572973

66.3822838

3937010637

62.1359445

5052893843

50.5313199

Hire purchase under ShirkatulMelk

1113760865

25.1256266

1768526166

27.9117975

4309572537

43.0977565

Bai-Muajjal 131097220.29574569 13527513

0.21349823 1164364

0.01164419

Quard 3481700797.85446111 601016156

9.48554879 633358640

6.33388491

Bai-Salam 151548750.34188284 16043764

0.25321101 2539331

0.02539451

Total4432768514 100

6336124236 100

9999528715 100

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66.3822837512602

25.1256266029325

7.854461109358080.341882842565237

Modes wise invesment of 2009

Bai Murabaha

Hire purchase under Shirkatul Melk

Bai-Muajjal

Quard

Bai-Salam

62.1359444726645

27.91179749841

9.485548793143980.253211007272301Modes wise investment of 2010

Bai MurabahaHire purchase under Shirkatul MelkBai-MuajjalQuardBai-Salam

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50.531319895309743.09775650261

73

6.33388490649482

Modes wise investment of 2011

Bai MurabahaHire purchase under Shirkatul MelkBai-MuajjalQuardBai-Salam

Modes wise investment of 2012-2013

Modes2012 2013amount % of invest. Amount % of invest.

BaiMurabaha2980118018 78.5748718 7110642463 92.5885848

Hire purchase under ShirkatulMelk 546381518 14.4060931 70110580 0.91291883Bai-Muajjal 3750994 0.09890007 232249 0.00302414Quard 2056770 0.05422954 2743986 0.03572979Bai-Salam 260403968 6.86590541 496096996 6.45974243

Total3792711268 100 7679826274 100

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66.3822837512602

25.1256266029325

0.341882842565237

Modes wise investment of 2012

Bai MurabahaHire purchase under Shirkatul MelkBai-MuajjalQuardBai-Salam

62.1359444726645

27.91179749841

0.253211007272301

Modes wise investment of 2013

Bai MurabahaHire purchase under Shirkatul MelkBai-MuajjalQuardBai-Salam

Page L

Investment Trend of FSIBLThis higher investment growth of the bank in 2012 and 2013 was due to the thrust given to promote investment for effective utilization of depositors fund..Trend of investment Shows a clear direction in last 5 years.

Years 2009 2010 2011 2012 2013Amount

38725874774

52123903164

64451579004

96304228588 1.14329E+11

2009 2010 2011 2012 2013

38725874774

5212390316464451579004

96304228588

114328753035

Investment trend of FSIBL

From the above chart we can see that investment of FSIBL is increasing year to year. Investment is the main source for income. The amount of income from year to year is increasing as the Bank's investment policy is favorable to customers.

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Distribution of Investment by Areas (Rural & Urban)

years Rural % Urban %

2009 370160295 0.074746 383557144790.10472

2010 4175020000.0843057 51706401164

0.14117

2011 11667630000.2356031 68300565284

0.18648

2012 15116696540.3052497 94792558934 0.2588

2013 14861442170.3000954 1.13116E+11

0.30883

total 4952239166 1 3.66271E+11 1

2009 2010 2011 2012 20130

20000000000

40000000000

60000000000

80000000000

100000000000

120000000000

ruralurban

from the above chart it is found that First Security Islami Bank ltd. invested the maximum money in urban area. Because maximum entrepreneur and businessman stay in urban area. However maximum organization established in urban area.

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Financial Stability of FSIBL

In the perspective of stability in the financial system, Islamic banks are less vulnerable to risk than conventional banks. They are able to pass the negative shocks on the asset side (Musharaka a/c) to the investment depositors (Mudaraba a/c).The risk-sharing arrangements on the deposit give secondary protection to the bank, in addition to its book capital. They also tend to be more conservative (resulting in less moral hazard and risk taking) for providing a stable and competitive return to investors, the shareholders responsibility for negligence or misconduct and given the more difficult access to liquidity. Bangladesh has a large population of Muslim people and among them the embrace of islami banking is increasing at a faster rate due to theirfaith. It is indeed desirable to encourage Islamic banks to develop new products for their customers who are willing to invest their savings in a shriah vehicle but these new products necessitate maintaining close monitoring so that no advance shocks can arise from their expanding horizons. Some financial ratio are given bellow-

Return on Asset=Net profit after tax/Total Asset*100years 2009 2010 2011 2012 2013Amount 0.68% 0.86% 0.64% 0.59% 0.48%

2009 2010 2011 2012 20130.00%0.10%0.20%0.30%0.40%0.50%0.60%0.70%0.80%0.90%

years

years

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ROA is primarily an indicator of managerial efficiency. It indicates how capable the management of the bank has been converting the asset into earnings.ROA of the islami bank in year 2010 is 0.89% that is higher than 0.64% in 2009 ,indicating better quality assets under possession of shariah banks and earnings more from the same amount of assets than the conventional banks.

Return on Equity =Net profit after tax/Total Equity*100years 2009 2010 2011 2012 2013Amount 11.40% 13.99% 12.75% 13.35% 11.74%

2009 2010 2011 2012 20130.00%

2.00%

4.00%

6.00%

8.00%

10.00%

12.00%

14.00%

years

years

ROE is measure of rate of return flowing to the bank’s shareholder. If approximates the net benefit that the shareholders have received from investing their capital in the bank. The ROE of FSIBL in year 2010 is 13% ,which is higher than year 2009,11,12 and 2013.ROE of 13% in CY10 indicating the earnings of FSIBL become higher compared to their equity position.

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Net Profit Margin =Net profit income /Gross earnings Assets*100

years 2009 2010 2011 2012 2013amount 2.03% 6.35% 0.84% 0.79% 1.15%

(Gross earning assets = Balance with other banks & FIs + Investment in securities + Loans & advances. For FSIBL profit income means income (interest) from investment (loans and advances).

2009 2010 2011 2012 201376.00%78.00%80.00%82.00%84.00%86.00%88.00%90.00%92.00%94.00%

years

years

Net profit ( interest) margin measures how large a spread between profit (interest) revenues and interest costs management has been able to achieve by close control over the bank’s earning assets and pursuit of the cheapest sources of funding.Net profit of FSIBL in year 2010 is 92.0%,whichis higher than previous year and after year 2013.

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Net profit (interest) income to total Assets =Net profit income/Total Assets*100years 2009 2010 2011 2012 2013amount 0.12% 0.41% 0.09% 0.09% 0.16%

( For FSIBL profit income means income (interest) from investment (loans and advances).

2009 2010 2011 2012 201376.00%78.00%80.00%82.00%84.00%86.00%88.00%90.00%92.00%94.00%

years

years

The Net profit income to total assets ratio of FSIBL in year 2010 is 92%, which is higher than the other year. Its indicated the higher income contribution from the other year.

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Investment Deposit Ratio=Investment/Deposit*100years 2009 2010 2011 2012 2013amount 91.28% 92.50% 88.90% 87.63% 81.95%

2009 2010 2011 2012 201376.00%78.00%80.00%82.00%84.00%86.00%88.00%90.00%92.00%94.00%

years

years

In 2013investment deposit ratio is less than other year. Other year ratio is increasing it shows that return to depositors is increasing year to year. Deposit is the main sources for investment. From the diagram we can see that over the year it is fluctuating.

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Chapter- IVSWOT Analysis

SWOT Analysis

SWOT analysis is the detailed study of an organization’s exposure and potential in perspective of its strength, weakness, opportunity and threat. This facilitates the organization to make their existing line of performance and also foresee the future to improve their performance in comparison to their competitors. As though this tool, an organization can also study its current position, it can also be considered as an important tool for making changes in the strategic management of the organization.

Strength

Adequate Finance: FSIBL has adequate finance. That is why, theydo not need to borrow money from Bangladesh bank or any other bank.More funds for investment: For adequate financial ability, they can provide more investment facility to their rather than other banks.

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Honest and reliable employees: All of the employees of FSIBL bank are honest and reliable. They are always devoted themselves to the clients for better customer.Religious feelings of the people: Most of the people of Bangladesh are Muslim and they are trusted in superior performance of FSIBL as a shariah based Islamic banking.

Weakness

Lake of adequate of employee: FSIBL has very limited human resources compared to its financial activities.Lake of up-to-date equipment: FSIBL has lake of modern technologies and equipments like adequate online facilities as well as cash card and credit card system.Deficiency of expertise: Many of the employees are unskilled and from them, superior performance is unexpected to survive in the national economy as well as in the world economy.Lake of advertising: FSIBL has lake of aggressive advertising like other banks. They don’t telecast any attractive in the media.Centralized decision making: The decision making of the bank is too many centralized. No decision is made without the authorization of the head office.

OpportunityInnovative and modern customer service: This bank can introduce more innovative and modern customer services to its customers to survive better in the competition market.Retaining vast customer: FSIBL has a vast opportunity to hold most of the customers by extending its banking operation all over the country as most of the people of Bangladesh are religious minded.Poverty alleviation: FSIBL has a great opportunity to save the county’s poor people from being taking loan from different NGOs or few banks with higher interest rate.Special Image: FSIBL has created special image to the people as a more reliable bank. People believe that if they keep their money in islami bank it will be more secured than other banks.

ThreatsRules and regulation: Rules and regulation of Bangladesh bank defers with islami banking system. So they have to face various problems to operate their activities according to the Islamic shariah.Lower salary structure: Now many of the banks are hiring young talent and expertise employees with higher remuneration where FSIBL could not hire skilled manpower because of lower salary structure compared to other banks.Islami banking system introduced by conventional banking: Few other conventional banks

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have opened their Islamic Banking Branch.

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Chapter- V

Findings & Recommendation

FindingsSince this study mainly focuses on the investment operations of FSIBL, it has been found that the investment operations of FSIBL are not so strong. From the study it is observed that FSIBL has some good points as:

FSIBL is a financially sound company.

FSIBL invest huge amount in industrial sector that is essential for Bangladesh as a less develop country.

FSIBL invest more also in rural development project and real estate project.

FSIBL is now a very popular bank in our country because of its smooth operations.

FSIBL performs mass banking which other bank does not perform for that reason it is very popular bank in our country.

Annual income of FSIBL is massive comparing to other commercial banks.

FSIBL provides its customer excellent and consistent quality in every service. Rate of return of FSIBL is low comparing to other conventional banks, which is good news for poor people.

FSIBL utilizes state-of-the art technology to ensure consistent quality and operation.

FSIBL provides its works force an excellent place to work.

FSIBL has already achieved a good will among the clients.

FSIBL has a research division.

Emergence of E-banking will open more scope for FSIBL.

FSIBL can introduce more innovative and modern customer service.

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Many branches can be open in remote location.

Recommendations

FSIBL should concern to invest in agriculture sector.

FSIBL should also provide scholarship to the poor students.

FSIBL investment percentage should increase and customer will interest to take their service.

FSIBL investment sector employees should proper train-up.

For the greater interest of the depositors the investment policy of FSIBL is to invest on the basis of profit & loss sharing in accordance with the tents and principles of Islamic Shariah.

FSIBL should broadcast their product and investment criteria through media.

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Conclusion

FSIBL is not material in its orientation. FSIBL does not invest any scheme, which conflicts with the moral value system of Islam. FSIBL does not strictly consider the credit worthiness of the industrialist. FSIBL receives a return only if the project succeeds and produces a profit. FSIBL considers the soundness of the project and business acumen and managerial competency of the entrepreneur. Therefore, the rate of return of investment of FSIBL is greater comparing to that of conventional banks.Finally, First Security Islami Bank Limited has been established with a view to conduct interest free banking to establish participatory banking instead of debtor-creditor relationship and finally to establish welfare oriented banking through its investment operations that would lead to a just society.

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Part: ThreeAppended part

Bibliography

A text book on Banking-Commercial Bank Management (12th Edition)

Dr. R.M. Debnath Durance B., Graddy and Austin H.

Officials of First Security Islami Ban Limited Bangladesh Bank Guidelines www.fsibl.bd.com www.bangladeshbank.org.bd Publications & Articles of FSIBL

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Corporate Slogans:“Green in Living”

Corporate Information:

Name of the Company First Security Islami Bank Ltd.Chairman Mohammad SaifulAlamVice Chairman Alhaj Mohammad Abdul MalequeManaging Director A.A.M. ZakariaCompany Secretary Abdul Hannan KhanLegal Status Public Limited CompanyDate of Incorporation August 29, 1999Date of Commencement of Business August 29, 1999Date of Permission from Bangladesh Bank September 22, 1999Date of Opening of First Branch October 25, 1999Corporate Head Office House-SW(I) 1/A, Road-8, Gulshan-1, DhakaRegistered Office 23, Dilkusha, Dhaka-1000, BangladeshLine of Business BankingAuthorized Capital Tk. 4,600 MillionPaid up Capital Tk. 3,740 MillionDate of Consent of IPO 04 June, 2008Branches in the Country 92 BranchesPhone 88-02-9560229 (Hunting), 9550334,7171029-30Fax 88-02-9561637E-mail bcs@fsiblbd.com, info@fsiblbd.comWebsite www.fsiblbd.com

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