Welcome to The

Presentation

Prepared By Md. Shahinuzzaman,

BBA 6th Batch, Patuakhali Science and Technology University

A Comparative study on Islamic Banking in Bangladesh

(A Case Study on IBBL and City Bank Ltd)

A banking system that is based on the principles of Islamic law (also known Shariah) and guided by Islamic economics. Two basic principles behind Islamic banking are the sharing of profit and loss and, significantly, the prohibition of the collection and payment of interest. Collecting interest is not permitted under Islamic law. Where the conventional banking follows conventional interest-based principle.

Islamic Banking

Islamic Bank Vs Conventional Banks in Bangladesh

SL Name of Bank Year of Incorporation

Listing Status

Year of Listing

1. Islami Bank Bangladesh Limited (IBBL) 1983 Listed 1985

2. ICB Islamic Bank Limited (ICBIBL) 1987 Listed 1990

3. Al-Arafah Islami Bank Limited (AAIBL) 1995 Listed 1998

4. Social Islami Bank Limited (SIBL) 1995 Listed 2000

5. Export Import Bank of Bangladesh Limited (EXIM)

1999 Listed 2004

6. First Security Islami Bank Ltd. (FSIB) 1999 Listed 2008

7. Shahjalal Islami Bank Limited (SJIBL) 2001 Listed 2007

8. Union Bank Limited (UBL) 2013 ------ ------

Islamic Banks’ Year of Incorporation and Listing

Principles of Islamic banking

MudharabahWadiahMusharakahMurabahahIjar

Overview of Islami Bank Bangladesh Limited (IBBL)

1st Islamic principles and shariah based bank in BangladeshStarted in 1983 About 12000 employees 295 Brances

Overview of City Bank Ltd.

City Bank is one of the oldest private Commercial Banks started their operations in 1983. Started with only Taka 3.4 crore worth of Capital, which now is a respectable Taka 330.77 crore as capital & reserve.

Comparison between traditional and Islamic banking system-

Comparison between traditional and Islamic banking system-

Comparison between traditional and Islamic banking system-

Comparison between traditional and Islamic banking system-

Comparison between conventional and Islamic banking system (IBBL) on the

basis of Deposit:

AL-WADIAH : In conventional banking system it is known as current account. Some conventional banks give interest to these accounts. Some conventional bank also opens this account in personal name of their customer.

MUDARABA: In conventional banking system it is known as savings account. Some conventional bank gives interest to this account. Conventional bank opens this account only in name of individuals.

Call deposit scheme: In conventional banking system it is known as deposits pension scheme account. Conventional bank gives interest to this account. That’s why conventional bank can ensure the actual amount to be paid to their customers. There is no product specially designed for hajj in conventional banking system because interest income is prohibited (HARAAM) in Islam.

Time Deposit: In conventional banking system it is known as fixed deposits. As like other accounts conventional bank gives interest to this account. To open this account in conventional bank one individual needs at least taka 50000. There is no need for saving account or current account to open this kind of account in conventional banking system.

Comparison between conventional and Islamic banking system (IBBL) on the

basis of Deposit:

Comparison between conventional and Islamic banking system (IBBL) on the

basis of Investment

Bai salam: In conventional banking system is known as letter of credit (LC). Here bank change a fixed interest rate to their client rather than sell it in higher price.

Analysis & Discussion “IBBL & City Bank Ltd”

Profitability :

In case of Profitability the null hypothesis has been rejected with respect to the ratios of return on total assets, profit expense ratio, growth of profit and earnings per share but accepted only for return on equity. That is performance of Islami bank Bangladesh ltd. is superior and indicates higher ability and therefore is an indicator of better managerial performance to that of City bank ltd. But ROE of City bank ltd. is superior to that of IBBL.

Analysis & Discussion “IBBL & City Bank Ltd”

Liquidity and Solvency In case of liquidity and solvency ratios the null hypothesis is rejected at 0.05 level of significance because the statistical t-value is not within accepted region for cash deposit ratio, advance deposit ratio, and equity multiplier ratio. That is liquidity & solvency statement is in favor of IBBL to that of City bank ltd. The calculated value reports that IBBL takes less financial stress and has borrowed fewer funds to convert into asset with the share capital but higher govt. bond investment of CITYBL indicates high liquidity and less risk to that of IBBL.

Business development

Based on the calculated value the null hypothesis is rejected at 0.05 level of significance as the statistical t-value is not within accepted region for all of the ratios that indicates performance of IBBL is superior to that of City bank ltd. and making significant contribution in the economic development of Bangladesh.

Analysis & Discussion “IBBL & City Bank Ltd”

Efficiency and Productivity In case of efficiency & productivity, Islami bank ltd. is more efficient than City bank ltd.because total operating expenses to deposits ratio of IBBL is less than CITYBL it means economies of scale is in favor of Islami bank Bangladesh ltd to that of CITY bank ltd.

Commitment to Economy and Community Long-term loan ratio is calculated to measure superiority in economic commitment where the null hypothesis is accepted at 0.05 level of significance it means City bank ltd. is superior to that of IBBL.

Analysis & Discussion “IBBL & City Bank Ltd”

Problems faced by the Islamic banks

When depositors open an account bank provide them a provisional rate of profit but in the time of profit calculation bank does not provide at the same rate. Islamic bank does not provide fixed return to the depositors so profit may be high or low. lack of proper Islamic banking rules in our country

Islamic bank cannot run in Shariah prohibited sector, so its investment scope is narrow in Bangladesh.Islamic banks should engage in poverty alleviation & rural development seriously, so they could not reinvest their idle money, as a result, profit is not increasing.

Problems faced by the Islamic banks

Islamic Banks use money as a media not goods, but conventional bank use money as a goodsThere is no scope of compound interest in the Islamic Banking system, bank charges one time profit and it calculates on the simple basis. In the Islamic banking system depositor get profit on the basis of weight age if the bank earn or make profit otherwise depositor must share loss. Islamic banks must have to be related with the business or investment or transaction of goods. But traditional banks are not bound to do this.

Findings

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: The whole financial System need to be re-organizedNew banking philosophy for the Islamic BanksBanking Policies and practices should be modernizedPolicy and Strategy should be formulatedStepping for Distributional EfficiencyAllocating Efficiency should be promotedGovernment and Central bank's ResponsibilitiesInter-Islamic Bank Co-operation and Perspective Plan

Concluding Remarks

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