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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: mdmaruf_ullah@yahoo.com
Md. Shahnur Azad Chowdhury, Assistant Professor, Department of Business Administration, International
Islamic University Chittagong, Bangladesh. E-mail: Email:tipu_iiuc@yahoo.com
2. Literature Review
Islamic banking (Arabic:
)is banking or banking activity that is
consistent 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 banks 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
SL
Particular
IBBL
FSBL
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
1,310.54
2,305.44
1130.591
3 Capital surplus
7,960.24
6,510.55
AIBL
SIBL
SBL
4 Total assets
5 Total deposits
341,853.67 78,145.25
82,186.18 66,461.65
83,350
98,840.56 67,233.45
73,433.81 78,355.07
80,592.04
21,482.78 27,478.09
34,083
113,420.93
54,765
30.47%
27.09%
39.07%
28.05%
26.07%
2.71%
2.34%
1.02%
1.04%
2.08%
4,841.45
3,125
1,772.05
1,782.02
3,671.02
3,636.69
2,764.70
2,872.30
3,050.00
503,453
8.86%
9.66%
11.08%
8.45%
7.98%
93,229.39
88,453.34
87,775.45
86,345.35
78,904.74
305,935
435,998
423,009
11.23%
12.22%
10.67%
3.00%
0.84%
1.23%
1.71%
1.87%
1.26%
32,308.90
204,675
105,394
145,654
112,733
4.84
3.06
3.01
4.03
2.62
4.84
3.06
3.01
4.03
2.62
11.27
11.25
12.57
11.67
12.38
2007
2008
2009
2010
2011
23,504
25,854
42,423
56,344
78,145
23,009
29,690
38,355
53,882
82,186
22,176
29,451
35,561
44,350
66,461
22,618
34,290
47,459
62,965
83,350
2007
2008
2009
2010
2011
9.99%
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.
2.
3.
4.
5.
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
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
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.
Secured Loan: A secured loan is a loan in which the borrower pledges some
asset (e.g. a car or property) as collateral.
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)
2007
2008
2009
2010
2011
Name of bank
2007
2008
2009
2010
2011
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.
2007
2008
2009
2010
2011
137,087
168,329
161,230
246,281
301,207
20,772
31,645
39,673
45,562
63,897
27,042.7
2
32,685.1
3
34,074.8
0
55,934.1
0
76,112.1
0
34,782
45,561
57,452
66,341
74,678
25,490
42,551
39,543
60,066
82,341
Name of bank
2007
2008
2009
22.79%
5.80%
20.86%
66.93%
4.25%
2.72%
2010
2011
52.75% 22.30%
64.15% 36.07%
51.90% 37.08%
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.
2007
2008
2009
2010
2011
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.
Name of
bank
Islami bank
bangladesh limited
(IBBL)
First security islami
bank (FSBL)
Al-Arafah islami bank
limited (AIBL)
Social islami bank
limited (SIBL)
Shahjalal bank limited
(SBL)
2007
2008
2009
2010
2011
144,920.6
1
180,053.94
214,615.
8
263.225.13
305,840.5
6
2,498.00
1,332.00
1,852.00
2,859.00
4,044.00
22,906.37
27,742.57
53,582.96
77,714.95
12,767.58
19,376.09
36,680.00
53,908.00
20,617.00
32,919.00
61,440.00
80,592.00
36,134.0
8
22,544.0
0
43,958.0
0
Name of bank
Islami bank bangladesh limited
(IBBL)
First security islami bank
(FSBL)
Al-Arafah islami bank limited
(AIBL)
Social islami bank limited
(SIBL)
Shahjalal bank limited (SBL)
2007
2008
2009
2010
2011
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
3,589.00
5,285.00
7,117.00
9,509.00
12,007.00
Name of bank
2007
2008
2009
2010
2011
13,918.7
0
17,408.5
0
18,886.2
0
21,674.2
0
28,053.9
8
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
2,274.00
3,475.00
5,076.00
5,980.00
9,009.00
Name of bank
Islami bank bangladesh
limited (IBBL)
First security islami bank
(FSBL)
Al-Arafah islami bank limited
(AIBL)
Social islami bank limited
(SIBL)
Shahjalal bank limited (SBL)
2007
2008
2009
2010
2011
3,780.8
2
6,347.8
3
6,517.6
7
10,347.3
1
128
189
751
8,454.7
1
1,204.0
0
1,672.3
5
2,811.7
5
2,78.01
7,942.00
490
841.22
1,315.0
0
1,810.0
0
3,096.0
7
1,406.0
0
2,041.0
0
1,636.0
0
3,529.0
0
1,590.00
2,718.00
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.
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 consumers 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.
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
=5
Disagree
--------------------------------------------------------------------------------------------------------------------Question 1: Name of the respondent
Designation
Department
Last date of promotion
Basis for your promotion
:
:
:
:
:
Merit
Seniority