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: 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
Proceedings of 3rd Asia-Pacific Business Research Conference
25 - 26 February 2013, Kuala Lumpur, Malaysia, ISBN: 978-1-922069-19-1
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: ‫مية ال م صرف ية‬
‫ )ا‬is 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 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
Proceedings of 3rd Asia-Pacific Business Research Conference
25 - 26 February 2013, Kuala Lumpur, Malaysia, ISBN: 978-1-922069-19-1
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 nonMuslims 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
Proceedings of 3rd Asia-Pacific Business Research Conference
25 - 26 February 2013, Kuala Lumpur, Malaysia, ISBN: 978-1-922069-19-1
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
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
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
98,840.56 67,233.45
73,433.81 78,355.07
80,592.04
21,482.78 27,478.09
34,083
6 Total loan & advances
Total contingent liabilities
7 & commitments
8 Credit Deposit ratio
Ratio of classified loans
against total loans &
9 advances
Profit after tax and
10 provision
Loan classified during the
11 year
Provision kept against
12 classified loans
13 Cost of Fund
Non-interest Earning
14 Assets
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
Proceedings of 3rd Asia-Pacific Business Research Conference
25 - 26 February 2013, Kuala Lumpur, Malaysia, ISBN: 978-1-922069-19-1
13.00%
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
15 Return on Equity (ROE)
16 Return on Assets (ROA)
17 Income from investment
18 Earnings per share
19 Net income per share
20 Price earnings ratio
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)
Proceedings of 3rd Asia-Pacific Business Research Conference
25 - 26 February 2013, Kuala Lumpur, Malaysia, ISBN: 978-1-922069-19-1
 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
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
-
21.51% 20.78% 19.50% 17.09%
-
9.99%
-
29.04% 29.18% 40.48% 52.52%
-
32.81% 20.75% 24.72% 49.86%
-
54.68% 38.40% 32.67% 32.38%
64.08% 32.81% 38.69%
Proceedings of 3rd Asia-Pacific Business Research Conference
25 - 26 February 2013, Kuala Lumpur, Malaysia, ISBN: 978-1-922069-19-1
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
Proceedings of 3rd Asia-Pacific Business Research Conference
25 - 26 February 2013, Kuala Lumpur, Malaysia, ISBN: 978-1-922069-19-1
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)
Amount of Loan & Advances of the five Islamic Banks (2007-2011)
(Tk. in million)
Name of bank
2007
2008
2009
2010
2011
Islami bank bangladesh limited
(IBBL)
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
Al-Arafah islami bank limited
(AIBL)
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
Proceedings of 3rd Asia-Pacific Business Research Conference
25 - 26 February 2013, Kuala Lumpur, Malaysia, ISBN: 978-1-922069-19-1
Growth of Loan & Advances of five Islamic Banks (2007-2011)
(Change in %)
Name of bank
2007
2008
2009
2010
2011
Islami bank bangladesh limited
(IBBL)
-
97.32% 26.40% 37.35% 29.65%
First security islami bank (FSBL)
-
33.20% 26.90% 61.11% 22.28%
Al-Arafah islami bank limited
(AIBL)
-
20.25% 57.97% 52.32% 59.70%
Social islami bank limited (SIBL)
-
57.86% 44.04% 12.14% 41.72%
Shahjalal bank limited (SBL)
-
74.70% 32.95% 19.99% 23.09%
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.
Proceedings of 3rd Asia-Pacific Business Research Conference
25 - 26 February 2013, Kuala Lumpur, Malaysia, ISBN: 978-1-922069-19-1
Import business of five Islamic Banks for the period between (20072011)
(Tk. in million)
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
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
Growth of Import business of five Islamic Banks (2007-2011)
(Change in %)
Name of bank
2007
2008
2009
Islami bank bangladesh limited
(IBBL)
-
22.79%
5.80%
First security islami bank (FSBL)
-
52.34% 25.36% 14.84% 40.24%
Al-Arafah islami bank limited
(AIBL)
-
20.86%
Social islami bank limited (SIBL)
-
30.99% 26.09% 15.47% 12.57%
Shahjalal bank limited (SBL)
-
66.93%
4.25%
2.72%
2010
2011
52.75% 22.30%
64.15% 36.07%
51.90% 37.08%
Proceedings of 3rd Asia-Pacific Business Research Conference
25 - 26 February 2013, Kuala Lumpur, Malaysia, ISBN: 978-1-922069-19-1
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
Islami bank bangladesh limited
(IBBL)
-
40.89% 13.26% 39.46% 20.09%
First security islami bank (FSBL)
-
14.01% 10.41% 13.06% 22.84%
Al-Arafah islami bank limited
(AIBL)
-
58.68% 16.69% 36.08% 62.92%
Social islami bank limited (SIBL)
-
35.17% 42.82% 19.84% 82.64%
Shahjalal bank limited (SBL)
-
74.67% 11.72% 65.98% 62.16%
Proceedings of 3rd Asia-Pacific Business Research Conference
25 - 26 February 2013, Kuala Lumpur, Malaysia, ISBN: 978-1-922069-19-1
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
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
Proceedings of 3rd Asia-Pacific Business Research Conference
25 - 26 February 2013, Kuala Lumpur, Malaysia, ISBN: 978-1-922069-19-1
Income of five Islamic Banks for the period between (2007-2011)
(Tk. in million)
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
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
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
Islami bank bangladesh
limited (IBBL)
First security islami bank
(FSBL)
Al-Arafah islami bank limited
(AIBL)
Social islami bank limited
(SIBL)
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
Shahjalal bank limited (SBL)
2,274.00
3,475.00
5,076.00
5,980.00
9,009.00
Proceedings of 3rd Asia-Pacific Business Research Conference
25 - 26 February 2013, Kuala Lumpur, Malaysia, ISBN: 978-1-922069-19-1
Profit of five Islamic Banks for the period between (2007-2011)
(Tk. in million)
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.
Proceedings of 3rd Asia-Pacific Business Research Conference
25 - 26 February 2013, Kuala Lumpur, Malaysia, ISBN: 978-1-922069-19-1
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
Proceedings of 3rd Asia-Pacific Business Research Conference
25 - 26 February 2013, Kuala Lumpur, Malaysia, ISBN: 978-1-922069-19-1
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 profitloss-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
Proceedings of 3rd Asia-Pacific Business Research Conference
25 - 26 February 2013, Kuala Lumpur, Malaysia, ISBN: 978-1-922069-19-1
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 prodevelopment 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.
Proceedings of 3rd Asia-Pacific Business Research Conference
25 - 26 February 2013, Kuala Lumpur, Malaysia, ISBN: 978-1-922069-19-1
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
Proceedings of 3rd Asia-Pacific Business Research Conference
25 - 26 February 2013, Kuala Lumpur, Malaysia, ISBN: 978-1-922069-19-1
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
Question 2: Is the Islamic bank fully Shariah based?
1 2 3 4 5
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
Proceedings of 3rd Asia-Pacific Business Research Conference
25 - 26 February 2013, Kuala Lumpur, Malaysia, ISBN: 978-1-922069-19-1
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………………………………………………………