prospects and problems of ibbl-shahnur azad sir iiuc

Proceedings of 3rd Asia-Pacific Business Research Conference

25 - 26 February 2013, Kuala Lumpur, Malaysia, ISBN: 978-1-922069-19-1

Prospects of Islamic Banking in Bangladesh

Md. Maruf Ullah and Md. Shahnur Azad Chowdhury

In a developing country like Bangladesh, the Islamic banking system as a whole has a vital role play in the process of economic development. The study has been concentrated on “Prospect of Islamic Banking in Bangladesh”. The paper mainly emphasizes on analyzing the performance of Islamic banks and it has also identified some problems & opportunities and provided some suggestions. It has been tried to provide some information about future performance. The study also noted that there is a high demand for interest-free banking services from a segment of people in Bangladesh who have a strong desire to abide by the rules and principals set by Shariah. Along with religious requirement, economic exigencies provide a new outlook to the role of banking in promoting investment productive activities, influencing distribution of income and adding stability to the economy. Moreover, conventional banks offering Islamic banking as a parallel service are to add to their profitability, by attracting people who value the Shariah based system by enjoying the advantages of the special treatments from the Central bank. According to the survey, suitable and supportive legal framework would facilitate better growth of this sector. For a continued expansion of the Islamic Banking system, however, a number of issues that pose serious problems for Islamic banks will need to be carefully addressed. This paper discusses and makes recommendations on the more pertinent of these issues, viz., the development of an Inter-Bank Islamic Money Market, activation of Shariah Supervisory Boards, enactment of a full-fledged Islamic Banking Act, development of New Financial Products in line with the Islamic Shariah, and extension of investment in line with PLS framework, especially by constituting consortium or syndication by the Islamic banks.

1. Introduction Islam, like all other religions have laid down special codes of ethics for doing business in principle and practice. Numerous studies on the subject confirmed that the sources of Islamic financial system regulation could be traced back from four main books which from the core of the Islamic legal system, also known as “Shariah”: The-

Holy Quran

The Sunnah

The Ijma

The Qiyas

The Islamic banking transaction model of “Profit-and-Loss Sharing (PLS)” was first formed in 1963 by an Egyptian. However, the first Islamic bank of the world was ___________________ Md. Maruf Ullah, Lecturer, Department of Business Administration, International Islamic University Chittagong. Bangladesh. E-mail: [email protected] Md. Shahnur Azad Chowdhury, Assistant Professor, Department of Business Administration, International Islamic University Chittagong, Bangladesh. E-mail: Email:[email protected]



considered to be Dubai Islamic Bank. Now-a-day Islamic banking made a phenomenal progress in the global economic activities. The purpose of this paper is to study prospect and challenges of Islamic banking in Bangladesh. Islamic banks have been operating in Bangladesh for about one and half decade alongside with the traditional banks. Today total number of Shariah based Islami bank is 11, which is situated in Bangladesh.

Objectives of the study 1) To introduce the Islamic legal system as the foundation of Islamic banking laws &

regulation. 2) To identify the challenges and problems in Islamic banking practices and

evaluate the performance of Islamic banks in Bangladesh. 3) To offer some recommendations to be adopted by different authorities to

implement Islamic Banking successfully.

2. Literature Review Islamic banking (Arabic: ية صرف م is banking or banking activity that is ( ا مية الconsistent with the principles of Shariah law and its practical application through the development of Islamic economics. Shariah prohibits the fixed or floating payment or acceptance of specific interest or fees (known as riba, or usury) for loans of money. Investing in businesses that provide goods or services considered contrary to Islamic principles is also haram ("sinful and prohibited"). Although these principles have been applied in varying degrees by historical Islamic economies due to lack of Islamic practice, only in the late 20th century were a number of Islamic banks formed to apply these principles to private or semi-private commercial institutions within the Muslim community. Islamic banking has the same purpose as conventional banking except that it operates in accordance with the rules of Shariah, known as Fiqh al-Muamalat. Amongst the common Islamic concepts used in Islamic banking are profit sharing (Mudarabah), safekeeping (Wadiah), joint venture (Musharaka), cost plus (Murabaha), and leasing (Ijara). Some of the salient features of Islamic Banking may be summed up as (Siddiqui, 2004): Kaynak and Whiteley(1999), for example, observed that the convenience of a bank was a primary motivation for customers in selecting a specific institution. Further, the convenience motivation include location or other factors such as service quality (Wel and Nor 2003, Lee and Marlowe 2003).Jalaluddin (1999) interviewed eighty Australian financial institutions based in Sydney on their attitudes towards Islamic profit/loss sharing methods of finance and whether they would be agreed to lend funds in accordance with these methods. Overall, more than forty percent of respondents were prepared to lend funds on a profit/loss sharing basis, motivated in part by the need to provide business support, strong growth in the demand for funds.In contrast, Almossawi (2001) concluded that the bank’s reputation was the most significant factor, while Owusu-Frimpong (1999), Ta and Har (2000) and Kaynak and Harcar (2005) found that profitability factors, such as low service charges and high interest rates, were the major reasons why customers chose a particular bank. Ahamad and Haron (2002) considered business attitudes towards Islamic banking products and services by forty-five corporate

http://en.wikipedia.org/wiki/Arabic_language

http://en.wikipedia.org/wiki/Banking

http://en.wikipedia.org/wiki/Sharia_law

http://en.wikipedia.org/wiki/Islamic_economics

http://en.wikipedia.org/wiki/Riba

http://en.wikipedia.org/wiki/Usury

http://en.wikipedia.org/wiki/Haraam

http://en.wikipedia.org/wiki/Principles

http://en.wikipedia.org/wiki/Private_bank

http://en.wikipedia.org/wiki/Commercial_bank



customers. The major finding was again that economic factors, such as profitability and the quality of services, were more significant for customers than religious reasons. However, one qualifying factor could be that the majority of respondents were non-Muslims who were generally less aware of the existence of Islamic banks and the substitutability of Islamic finance methods for products and services. Kaynak and Harcar (2005) also concluded that a fast and efficient service was also an attractive feature valued by current and potential customers, while Gerard and Cunningham (2001) considered that for most customers the most important criterion for bank selection was feeling secure.

3. Methodology of the study The methodology of the study will be described in terms of the following context:

Information to be obtained: For my thesis purpose, I have gathered great deal of information about my selected banks. I have worked with five Islamic banks which are operating in Bangladesh.

Questionnaire development: In developing my questionnaires, I have used different techniques. In my questionnaires, some questions are multiple choices, some are open-ended, and some are dichotomous. I have used multiple choice and dichotomous questionnaire, because it is easy for my respondents to answer the questions. I have considered here open-ended questions to find out more information.

Field work or data collection: Method of data collection will be presented in terms of

Primary data collection Secondary data collection

Primary data collection: Primary data have been collected through interviews with the concerned authorities of the selected banks. Some data have also been collected through observation. Secondary data collection: Secondary data have been obtained from the different books, annual report, news paper, magazine, internet whose names have been given in the references.

Data analysis and presentation: Analysis the data on the subject through a study of annual report, journals, periodicals, balance sheet, newspaper etc.

Findings: I have made a conclusion & recommendation on the base of my findings.

4.1 Overview of the bank

Islamic banks have been operating in Bangladesh for about one and half decade alongside with the traditional banks. Like any other commercial banks, Islamic mobilize deposits and produce loans. But their modes of operation, based on Shariah, are



different from the other commercial banks. However, I would discuss about five Islamic banks operating in Bangladesh, which are: Islami Bank Bangladesh Limited (IBBL); First Security Islamic Bank (FSIB); Al-Arafah Islami Bank Limited (Al-Arafah); Social Islami Bank Limited (SIBL); and Shahjalal Bank Limited (SBL);

Highlights of overall activities of the five selected Islamic banks in year 2011

(Tk. In million):

SL Particular IBBL FSBL AIBL SIBL SBL

1 Paid up capital 10,007.71 6,766.45 5,893.37 4,234.37 4452.64

2 Total capital 33,716.73 23,654.04 10,641.90 9834.04 9183.271

3 Capital surplus 7,960.24 6,510.55 1,310.54 2,305.44 1130.591

4 Total assets 389,192.12 91,012.00 103,518.00 403,43.09 107,288.00

5 Total deposits 341,853.67 78,145.25 82,186.18 66,461.65 83,350

6 Total loan & advances 98,840.56 67,233.45 73,433.81 78,355.07 80,592.04

7 Total contingent liabilities & commitments 113,420.93 54,765 21,482.78 27,478.09 34,083

8 Credit Deposit ratio 30.47% 27.09% 39.07% 28.05% 26.07%

9

Ratio of classified loans against total loans & advances 2.71% 2.34% 1.02% 1.04% 2.08%

10 Profit after tax and provision

4,841.45 3,125 1,772.05 1,782.02 3,671.02

11 Loan classified during the year

3,636.69 2,764.70 - 2,872.30 -

12 Provision kept against classified loans

3,050.00 503,453 305,935 435,998 423,009

13 Cost of Fund

8.86% 9.66% 11.08% 8.45% 7.98%

14 Non-interest Earning Assets

93,229.39 88,453.34 87,775.45 86,345.35 78,904.74



15 Return on Equity (ROE)

13.00% 11.23% 12.22% 10.67% 3.00%

16 Return on Assets (ROA)

0.84% 1.23% 1.71% 1.87% 1.26%

17 Income from investment

32,308.90 204,675 105,394 145,654 112,733

18 Earnings per share

4.84 3.06 3.01 4.03 2.62

19 Net income per share

4.84 3.06 3.01 4.03 2.62

20 Price earnings ratio

11.27 11.25 12.57 11.67 12.38

From the table we see the following changes, which are given below:

Paid up capital: The amount of paid up capital in 2011 was high in IBBL in comparing with the other banks.

Total Asset: In the case of total assets IBBL is in the first position. Deposit: The amount of total deposit is high in IBBL. Deposit growth rate is

17.09% in 2011. Loan & Advances: Amount of loan & advances is high in IBBL. Here the

changing rate was 29.65%. Credit deposit ratio: In 2011 the percentage of credit deposit ratio was high in

AIBL. Profit after tax provision: The rate of profit after tax provision has greatly high

in IBBL. Cost of fund: From the above data, it is clear that AIBL has to obtained

highest cost of fund in comparing with the other banks. ROE & ROA: ROE & ROA can be measured by

Return on equity = Net income/Total equity Return on assets = Net income/Total assets IBBL has highest ROE & SIBL has highest ROA.

4.2 Deposit analysis

Deposits are the main source invertible funds of the Islamic bank. As such, the marketing and management of deposit is a very important subject matter of Islamic banking. All Islamic Bank offers a wide variety of deposit products to meet the financial needs. From current and savings accounts to Fixed Deposits and Pension Schemes each account is designed to give the best value for money. All Islamic Bank in Bangladesh offers the following deposits:

Savings Account Current Account Fixed Deposit Receipt (FDR) Short Term Deposit (STD) Pension Savings Scheme (PSS) Monthly Income Scheme (MIS)



Double Return Deposit Scheme All Islamic banks in Bangladesh give special importance on savings. The objectives & principles of the saving policies of these banks are: 1. To encourage people to save for safe and for the country as a whole. 2. To develop a sustain savings habit among the people.

Amount of deposit of five Islamic Banks (2007-2011) (Tk. in million)

Name of bank 2007 2008 2009 2010 2011

Islami bank bangladesh limited (IBBL) 166,325 202,115 244,292 291,934 341,853

First security islami bank (FSBL) 23,504 25,854 42,423 56,344 78,145

Al-Arafah islami bank limited (AIBL) 23,009 29,690 38,355 53,882 82,186

Social islami bank limited (SIBL) 22,176 29,451 35,561 44,350 66,461

Shahjalal bank limited (SBL) 22,618 34,290 47,459 62,965 83,350

Growth of deposit of five Islamic Banks (2007-2011) (Change in %)

Name of bank 2007 2008 2009 2010 2011

Islami bank bangladesh limited (IBBL)

- 21.51% 20.78% 19.50% 17.09%

First security islami bank (FSBL) - 9.99% 64.08% 32.81% 38.69%

Al-Arafah islami bank limited (AIBL)

- 29.04% 29.18% 40.48% 52.52%

Social islami bank limited (SIBL) - 32.81% 20.75% 24.72% 49.86%

Shahjalal bank limited (SBL) - 54.68% 38.40% 32.67% 32.38%



Total deposit of five Islamic banks (2007-2011) is shown in the following graph:

At present time the growth is very high in all the five Islamic banks. Among all the five banks IBBL position is very high. In 2007 the deposit of IBBL value was Tk.166,325 million which was increased to Tk. 341,853 million in 2011. Similarly in 2007 the deposit of FSBL value was Tk.23,504 million which was increased to Tk.78,145 million in 2011, in 2007 the deposit of AIBL was Tk. 23,009 million & Tk. 82,186 million in 2011, in 2007 the deposit of SIBL was Tk.22,176 million & Tk.66,461 million in 2011, in 2007 the deposit of SBL was 22,618 million & Tk.83,350 million in 2011.

4.3 Loan & Advances Analysis In Islam it is not permissible to take out riba-based loans, from the bank or elsewhere, even if that is to prepare a house for marriage, because of the definite prohibition on riba and the stern warning against it. Allah says: “O you who believe! Be afraid of Allah and give up what remains (due to you) from Riba (from now onward) if you are (really) believers. And if you do not do it, then take a notice of war from Allah and His Messenger but if you repent, you shall have your capital sums. Deal not unjustly (by asking more than your capital sums), and you shall not be dealt with unjustly (by receiving less than your capital sums)” [al-Baqarah 2:278-279] All the five Islamic Banks in Bangladesh (Which are selected for my thesis paper) has offered several types of loan, which are given below-

Qard hassan / Qardul hassan (good loan/benevolent loan) Mortgage Student loan Secured Unsecured

1. Qard Hassan / Qardul Hassan (good loan/benevolent loan): This is a loan extended on a goodwill basis, and the debtor is only required to repay the

http://www.google.com/url?sa=t&rct=j&q=&esrc=s&source=web&cd=3&cad=rja&ved=0CDkQjBAwAg&url=http%3A%2F%2Fen.wikipedia.org%2Fwiki%2FMortgage_loan&ei=zkanUMq4IsfVrQfTuIHgCQ&usg=AFQjCNEnoHDgBSG0LFByhzbRQ_Hg_9QPQA



amount borrowed. However, the debtor may, at his or her discretion, pay an extra amount beyond the principal amount of the loan (without promising it) as a token of appreciation to the creditor

2. Mortgage loan: A mortgage loan is a loan secured by real property through the use of a mortgage note which evidences the existence of the loan and the encumbrance of that realty through the granting of a mortgage which secures the loan. However, the word mortgage alone, in everyday usage, is most often used to mean mortgage loan

3. Student loan: A student loan is designed to help students pay for university tuition, books, and living expenses. It may differ from other types of loans in that the interest rate may be substantially lower and the repayment schedule may be deferred while the student is still in education. It also differs in many countries in the strict laws regulating renegotiating and bankruptcy.

4. Secured Loan: A secured loan is a loan in which the borrower pledges some asset (e.g. a car or property) as collateral.

5. Unsecured Loan: Unsecured loans are monetary loans that are not secured against the borrower's assets. Such as:

Credit card debt

Personal loans

Bank overdrafts

Credit facilities or lines of credit

Corporate bonds (may be secured or unsecured)

Amount of Loan & Advances of the five Islamic Banks (2007-2011) (Tk. in million)

Name of bank 2007 2008 2009 2010 2011


22,187 43,781 55,342 76,234.90 98,840.56

First security islami bank (FSBL) 20,187 26,891 34,126 54,981.56 67,233.45


15,891 19,109 30,187 45,981.34 73,433.81

Social islami bank limited (SIBL) 21,894 34,561 49,781 55,826.09 78,355.07

Shahjalal bank limited (SBL) 22,198 38,781 51,563 65,471.89 80,592.04

http://www.google.com/url?sa=t&rct=j&q=&esrc=s&source=web&cd=3&cad=rja&ved=0CDkQjBAwAg&url=http%3A%2F%2Fen.wikipedia.org%2Fwiki%2FMortgage_loan&ei=zkanUMq4IsfVrQfTuIHgCQ&usg=AFQjCNEnoHDgBSG0LFByhzbRQ_Hg_9QPQA

http://en.wikipedia.org/wiki/Loan

http://en.wikipedia.org/wiki/Collateral_%28finance%29

http://en.wikipedia.org/wiki/Real_property

http://en.wikipedia.org/wiki/Mortgage_note

http://en.wikipedia.org/wiki/Encumbrance

http://en.wikipedia.org/wiki/Mortgage_law

http://en.wikipedia.org/wiki/Security_interest

http://en.wikipedia.org/wiki/Secured_loan

http://en.wikipedia.org/wiki/Pledge_%28law%29

http://en.wikipedia.org/wiki/Collateral_%28finance%29

http://en.wikipedia.org/wiki/Credit_card

http://en.wikipedia.org/wiki/Bank

http://en.wikipedia.org/wiki/Overdraft

http://en.wikipedia.org/wiki/Corporate_bond



Growth of Loan & Advances of five Islamic Banks (2007-2011) (Change in %)

Name of bank 2007 2008 2009 2010 2011


- 97.32% 26.40% 37.35% 29.65%



- 20.25% 57.97% 52.32% 59.70%



Fig: Loan & Advances of the five Islamic banks in the year 2007- 2011

At present time the growth of loan is high in all the five Islamic banks. Among all the five banks IBBL position is very high. In 2007 the loan of IBBL value was Tk.22,187 million which was increased to Tk.98,840.56 million in 2011. Similarly in 2007 the loan of FSBL value was Tk.20,187 million which was increased to Tk.67,233.45 million in 2011, in 2007 the loan of AIBL was Tk15,891 million & Tk.73,433.81 million in 2011, in 2007 the loan of SIBL was TK.21,894 million & Tk.78,355.07 million in 2011, in 2007 the loan of SBL was Tk.22,198 million & Tk.80,592.04 million in 2011.



Import business of five Islamic Banks for the period between (2007-2011)

(Tk. in million)

Name of bank 2007 2008 2009 2010 2011


137,087 168,329 161,230 246,281 301,207

First security islami bank (FSBL)

20,772 31,645 39,673 45,562 63,897


27,042.72

32,685.13

34,074.80

55,934.10

76,112.10

Social islami bank limited (SIBL)

34,782 45,561 57,452 66,341 74,678

Shahjalal bank limited (SBL) 25,490 42,551 39,543 60,066 82,341

Growth of Import business of five Islamic Banks (2007-2011) (Change in %)

Name of bank 2007 2008 2009 2010 2011


- 22.79% 5.80% 52.75% 22.30%



- 20.86% 4.25% 64.15% 36.07%





Total amount of import business in year (2007-2011) are shown in the graph:

At present time the growth of import business is very high in all the five Islamic banks. Among all the five banks IBBL position is very high. In 2007 the import business of IBBL value was Tk.137,087 million which was increased to Tk.301,207 million in 2011. Similarly in 2007 the FSBL value was Tk.20,772 million which was increased to Tk.63,897 million in 2011, in 2007 the AIBL was Tk.27,042.72 million & Tk.76,112.10 million in 2011, in 2007 the SIBL was Tk.34,782 million & Tk.74,678 million in 2011, in 2007 the SBL value was Tk.25,490 million & Tk.82,341 million in 2011.

Growth of Export business of five Islamic Banks (2007-2011)

(Change in %)

Name of bank 2007 2008 2009 2010 2011


- 40.89% 13.26% 39.46% 20.09%



- 58.68% 16.69% 36.08% 62.92%





Total amount of export business in year (2007-2011) are shown in the graph:

At present time the growth of export business is very high in all the five Islamic banks. Among all the five banks IBBL position is very high. In 2007 the export of IBBL value was Tk.66,690 million which was increased to Tk.178,244 million in 2011. Similarly in 2007 the FSBL value was Tk.45,988 million which was increased to Tk.80,399 million in 2011, in 2007 the AIBL was Tk.12,714.91 million & Tk.52,202.10 million in 2011, in 2007 the SIBL was Tk.19,563 million & Tk.82,671 million in 2011, in 2007 the SBL value was Tk.15,084 million & Tk.79,225 million in 2011.

Investment, Income, Expenditure, Profit Investment of five Islamic Banks for the period between (2007-2011)

(Tk. in million)

Name of bank

2007 2008 2009 2010 2011


144,920.61

180,053.94 214,615.

8 263.225.13

305,840.56


2,498.00 1,332.00 1,852.00 2,859.00 4,044.00


22,906.37 27,742.57 36,134.0

8 53,582.96 77,714.95


12,767.58 19,376.09 22,544.0

0 36,680.00 53,908.00

Shahjalal bank limited (SBL)

20,617.00 32,919.00 43,958.0

0 61,440.00 80,592.00



Income of five Islamic Banks for the period between (2007-2011) (Tk. in million)

Name of bank 2007 2008 2009 2010 2011


17,699.52 23,756.33 25,403.86 30,128.90 38,401.29


414 572 1,327.00 2,085.00 2,738.00


2,243.15 3,456.34 4,004.54 4,306.62 9,481.01


1,173.08 1,665.00 2,278.00 2,633.00 4,146.00

Shahjalal bank limited (SBL) 3,589.00 5,285.00 7,117.00 9,509.00 12,007.00

Expenditure of five Islamic Banks for the period between (2007-2011) (Tk. in million)

Name of bank 2007 2008 2009 2010 2011


13,918.70

17,408.50

18,886.20

21,674.20

28,053.98


286 383 576 881 1,148.00


570.8 644.59 908.47 1,328.61 1,539.69


683 823.78 872.9 997 1,428.00

Shahjalal bank limited (SBL) 2,274.00 3,475.00 5,076.00 5,980.00 9,009.00



Profit of five Islamic Banks for the period between (2007-2011) (Tk. in million)

Name of bank 2007 2008 2009 2010 2011


3,780.82

6,347.83

6,517.67

8,454.71

10,347.31


128 189 751 1,204.00

1,590.00


1,672.35

2,811.75

3,096.07

2,78.01 7,942.00


490 841.22 1,406.00

1,636.00

2,718.00

Shahjalal bank limited (SBL) 1,315.00

1,810.00

2,041.00

3,529.00

2,998.00

Total amount of profit of five Islamic banks (2007-2011) is shown in the following graph:

At present time the growth of profit is high in all the five Islamic banks. Among all the five banks IBBL position is very high. In 2007 the deposit of IBBL value was Tk.3, 780.82 million which was increased to Tk.10, 347.31 million in 2011. Similarly in 2007 the deposit of FSBL value was Tk.128.00 million which was increased to Tk.1, 590.00 million in 2011, in 2007 the deposit of AIBL was Tk.1, 672.35 million & Tk.7, 942.00 million in 2011, in 2007 the deposit of SIBL was Tk.490.00 million & Tk.2, 718.00 million in 2011, in 2007 the deposit of SBL was Tk.1, 315.00 million & Tk.2, 998.00 million in 2011.



5 Comparison between Islamic & Conventional Banking system and challenges Now-a-days Islamic banking plays an important role in the whole economic system of the country. Due to its operations based on the interest free banking, it does achieve popularity among the customer. Though Islamic banking system faces various problems but it also provides different types of challenges to the other commercial banks in Bangladesh. 5.1 Mobilization of fund: The major part of the operational financial resources of Islamic banks is derived from different types of deposits mobilized on the principles of Al-Wadiah (safe custodianship) and Al-Mudarabah (trust financing). Utilization of fund under the framework of Islamic banking has opened a multifarious way for making loan (the term “loan” in conventional banking is called "Investment" in the Islamic banking system) conforming to Islamic Shariah. Since Islamic banks can not lend on interest, they have devised different types of interest-free financing devices. 5.2 Investment & Customer: Among all the banks in Bangladesh Islamic banks has the highest amount of investment and also the highest number of customers. So it is a great challenge for the commercial banks because day by day the amount of investment increases. As a result profit of Islamic banks also increases. 5.3 Liquidity: An important feature about Islamic banks is their relative excessive liquidity. This has been interpreted as implying that most Islamic banks have the tendency to indulge in quick return lending. The extent to which Islamic banks can overcome the application of fund problem would depend on the willingness of the government to create suitable (non-interest bearing) short-term instrument as an outlet for excess funds of Islamic banks. Islamic banks are less exposed to liquidity risk. On the other hand, commercial banks depend more on external liabilities than Islamic banks. Naturally, markets showed that customers were more attracted to use financial instruments offered by Islamic banks. 5.4 Hajj Fund: It is a great challenge from Islamic banks to all commercial banks. Because, only Islamic banks offer these types of fund. All Muslim are attracted by these. There are many Muslim people who are not financially strong. So Hajj funds it very much helpful for them. 5.5 Welfare activities: In Shariah Muslims are not allowed to receive or pay interest, which is called (Riba). They are encouraged to trade, invest and share profit and loss, instead. "Islamic attitudes towards ethics, wealth distribution, social and economic justice, and the role of the state." Therefore, the purpose of finance in Islam is to achieve welfare for all parties. 5.6 Popularity: At present the commercial banks in Bangladesh side by side with conventional banking, they have dual banking system. Conventional banks are also trying to introduce Islamic windows in their attempt to attract Investors who are seeking



to invest their money using Shariah compliance products and transactions and other non-Muslim who seek ethical solutions. It is shows that Islamic banking system gain popularity among the people. 5.7 Finally, it can be said that performance of interest-free Islamic banks in business development, profitability, liquidity and solvency is superior to that of interest-based conventional banks. That is comparatively Islamic banks are superior in financial performance to that of interest-based conventional banks.

6 The Future of Islamic Banking in Bangladesh

There has been identified progress made by Islamic banking sector since independence. But for gaining Better progress in the future following steps should be taken by all Islamic banks:[4] 6.1. the whole financial System need to be re-organized: Conventional bank should re examine and covert their system to (Profit and Loss Sharing (PLS). 6.2 New banking philosophy for the Islamic Banks: There seems to be a gap between the ideals and actual practice of Islamic banks in Bangladesh. In their reports, booklets, bulletins and posters their banks express their commitment to striving for establishing a just society free from exploitation. Study shows that a little progress has been achieved so far in that direction. 6.3 Banking Policies and practices should be modernized: Islamic banks, with a view to facing the growing competition either fellow-Islamic banks or the conventional banks which have launched Islamic banking practices, will have to adapts their functioning in line with modern business practices. 6.4 Policy and Strategy should be formulated: The first action that deserves immediate attention is the promotion of the image of Islamic banks as PLS banks. Strategies have to be carefully devised so that the image of Islamic character and solvency as a bank is simultaneously promoted. 6.5 Stepping for Distributional Efficiency: The task is more challenging for Islamic banks, as they have to promote their distributional efficiency from all dimensions together with profitability, Islamic banks, step by step, have to be converted into profit-loss-sharing banks by increasing their percentage share of investment financing though PLS modes. 6.6 Allocating Efficiency should be promoted: The Islamic banks can improve their Allocative efficiency by satisfying social welfare conditions in the following manner. First, they should allocate a reasonable portion of their investible funds in social priority sectors such as agriculture (including poultry and fishery), small and cottage industries and export-led industries like garment, shrimp cultivation. Secondly, when the



percentage shares of allocation of investible funds are determined among the sectors of investment financing, profitability of projects should be the criterion for allocating investment funds. The criterion would be best satisfied if more and more projects were financed under PLS modes. 6.7 Government and Central bank's Responsibilities: Government should think actively for the promotion of Islamic banking in Bangladesh considering its pro-development role. Bangladesh Bank should develop some Islamic Monetary and saving instruments and create separate window for transactions with the Islamic banks and a full-fledged Islamic banking Department for analyzing, supervising, monitoring and guiding purpose, thereby facilitating Islamic banks for their smooth development in Bangladesh. 6.8 Inter-Islamic Bank Co-operation and Perspective Plan: All Islamic banks should come forward to help each other’s and adopt a perspective plan say for 27 years for Islamization of the banking system of Bangladesh. To actualize this mission, they should set-up immediately an Apex Research Academy and Training Institute designed with modern tools.

Conclusion The study of the prospects, challenges and problems of the Islamic banking sector of Bangladesh shows that this sector is progressing steadily. The formation of Islamic banks and adoption of parallel Islamic banking by several conventional banks over the years can be an indicator of the high acceptability of this sector by the public. The main reason for the demand for Islamic banking can be attributed to the desire of people to engage in financial transactions that adhere to the rules of Shariah. The demand from this segment induces banks to either offer Islamic finance exclusively or as a parallel service with other conventional offers. The Islamic bankers believe that the Profit Loss Sharing (PLS) method represents financial advantages for the banks and offers benefits for the economy by causing lower interest stimulated instability. The banks are, however, not implementing the principals of Shariah fully. According to the conventional banks, these banks have not abolished interest from the transactions. This has caused the PLS method fail to have the impact it is intended to have on risks, profitability and the society. The foremost factor making Islamic banking attractive to customers is adherence to the rules of Shariah. Convenience of opening accounts or the quality of the services offered does not have much impact on the consumer’s decision of choosing an Islamic banking system, but for the Shariah based activities of the Islamic banks, their reliable commitment to the customer also their well behave encourage the Muslim to be attracted by the Islamic banks. At present Islamic banking is worldwide. They follow Islamic rules & laws appropriately. So, day by day its gain its popularity as a secure banking. As a result customer put their steps to the door of Islamic banks.



References:

1. Kazi Sayema Binte Furuky, Islami Economics & Banking System: The Experience of Bangladesh, Dhaka Commerce College Journal, Vol. 1 No. 2 Dec 2003.

2. Mirakhor, “Progress and Challenges of Islamic banking”, Review of Islamic Economics, vol. 4, No.2, 1997.

3. C R Kothari, Research Methodology, 2nd edition,2004,New Delhi 4. Md. Abdul Awwal Sarker ,ISLAMIC BANKING IN BANGLADESH:

PERFORMANCE, PROBLEMS & PROSPECTS, International Journal of Islamic Financial Services Vol. 1 No.3

5. Ahmed, Ausaf. (1995). The Evolution of Islamic Banking. In Encyclopedia of Islamic Banking and Insurance, Institute of Insurance . Institute of Islamic Banking and Insurance, London.

6. Ahmad, Z. (1981): Islamic Banking at the Crossroads, Development and Finance in Islam, p. 155-171, and also in Ahmad, Z Concept and \models of Islamic Banking :An Assessment, Islamabad: International Institute of Islamic Economics, 1984.

7. Annual reports: Islamic Bank Bangladesh Limited, Annual report: 2007-2011 First Security Islamic Bank, Annual report: 2007-2011 Al-Arafah Islami Bank, Annual report: 2007-2011 Social Islami Bank Ltd, Annual report: 2007-2011 Shahjalal Bank Limited, Annual report: 2007-2011

8. Websites: 1. www.googlescholar.com 2. www.islamicbanking/bd.com 3. www.originofbanking.com 4. www.financeworld.com

http://www.google/

http://www.islamic/

http://www.origin/



Appendix” Questionnaire

“Prospest of Islamic Banking in Bangladesh” Data Collection from:

Senior Executives, Employees, authority of all the five Islamic banks Instructions: For each of the following statements represent your point of view provided into the box. Please be honest and straight forward to express your opinion and answer, which is confidential also.

Scale:

Strongly Agree = 1

Agree = 2

Undecided = 3

Disagree = 4

Strongly Disagree

= 5

--------------------------------------------------------------------------------------------------------------------- Question 1: Name of the respondent : ……………… Designation : ……………… Department : ……………… Last date of promotion : ……………… Basis for your promotion : Merit Seniority Question 2: Is the Islamic bank fully Shariah based?

Question 3: Please explain the reason behind it: …………………………………………………. Question 4: Is the Islamic bank positively fulfilling the overall social responsibility?

1 2 3 4 5

Question 5: Please explain the reason behind the statement: …………………………………………………………….. Question 6: Islamic bank strongly provide education facilities by scholarship program.

1 2 3 4 5

Question 7: Do you think that information technology of Islamic bank is strong?

1 2 3 4 5

1 2 3 4 5



Question 8: Please explain the reason behind this. …………………………………………………………….. Question 9: The performance of Islamic bank is appropriate in times of Disaster.

1 2 3 4 5

Question 10: Through the activities of Islamic banks, the economy of the country is benefited. Explain it………………………………………………………

prospects and problems of ibbl-shahnur azad sir iiuc

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