Islamic Banking, emergence of Islamic banking, RDS-Rural Development Scheme of Islamic Banking, Difference between Islamic and conventional Banking

Class Lecture

Islamic Financial System (Fin-5402)

Islamic Banking, Emergence of Islamic banking, RDS-Rural Development Scheme of Islamic Banking, Difference between Islamic and conventional Banking,

Evolution of Islamic Banking

Emergence of Islamic Banking Islamic banking emerged as a response to both religious and economic exigencies. While religious exigency calls for avoiding any transaction based on interest, economic exigencies, on the other hand, provide a new outlook to the role of banking in promoting investment / productive activities, influencing distribution of income and adding stability to the economy. Islamic banking is thus perceived as an improved system in all dimensions. The first attempt Interestingly, the concept of Islamic Banking is several decades old. The first attempt to establish an Islamic financial institution took place in Pakistan in the late 1950s with the establishment of a local Islamic bank in a rural area (Wilson 1983). Some pious landlords who deposited funds at no interest, and then loaned to small landowners for agricul­tural development initiated the experiment. The borrower did not pay interest on the credit advanced, but a small charge was levied to cover the bank's operational expenses. The charge was far lower than the rate of interest. Although the experience was encouraging, two main factors were responsible for its failure. First, the depositors' landlords regarded the deposits as a one-time event. With the increasing number of borrow­ers the gap between available capital and credit demanded was huge. Secondly, the bank staff did not have complete autonomy over its operation; depositors showed considerable inter­est in the way their money was lent out (Ibid). The second attempt The second pioneering experiment of putting the principles of Islamic banking and finance into practice was conducted in Egypt from 1963 to 1967 through the establishment of the Mit Ghamr Savings Bank in a rural area of the Nile Delta. The experiment soon became success­ful; more branches were opened in different parts of the country, and the amount of deposits increased. Hence, what started as a single bank operation expanded to form a network of local savings banks. Although the project made a good start and initial results were more than encouraging, it suffered a setback owing to changes in the political atmosphere. Nevertheless, the project was re­vived in 1971 under the name of Nasser Social Bank. This was the first Islamic bank in an urban setting based in Cairo. The bank is a public authority with an autonomous status. Its purpose was mainly to promote social concerns such as granting of interest-free loans for small projects on a profit-loss-sharing basis, and assist­ance to the poor and needy students for university and higher education. Because of these social functions, Nasser Social Bank was granted an exemption from the Banking and Credit Law of 1957 in its initial stages. Tabung Hajji: a successful attempt Islamic banking, with a very different approach contemporary to that in Egypt, emerged in Malaysia. It was a financial institu­tion developed for the pilgrims of Malaysia. These institutions were established in response to what was the contention of the Malaysian Muslims that money spent on pilgrimage must be clean and untainted with 'Riba'. Since this was not possible by depositing money with the ordinary banks, a special financial institution had to be created. Consequently, Pilgrims Saving Corporation was established in 1963, which was later on incorporated into the Pilgrims Management Fund Board (Tabung Hajji) in 1969 (A. Ahmad 1993). Other attempts Next to follow was the Dubai Islamic Bank in 1975. The Dubai Islamic Bank is a public limited company having its office at Dubai, U.A.E. with capital of 50 million Dirhams. Since then, a number Islamic banks and financial institutions have been estab­lished in different parts of the world and have been functioning successfully. A significant development in Islamic banking has been the granting of an Islamic bank license in Saudi Arabia to the fifty-year old "Al-Rajhi Company", a firm noted for its currency, exchange and commercial activities, whose assets exceed $5 billion. The firm started operation in 1985 under the name of "Al-Rajhi Banking Investment Corporation" and has since developed active relationships with major manufacturing and trading companies in Europe and several U.S. corporations. The emerging success of Al-Rajhi in operating profitably in different regions of the world has increased pressure on the Saudi government to go for full-fledged Islamic banking (Mangla, Uppal & Swamy 1988, p.54). An example of multi-cooperation at the government level in the field of Islamic banking, is the Islamic Development Bank, which was founded in 1975 as a multi-national corporation by several Muslim countries. The purpose of the bank is to support social and economic development in Muslim nations within an Islamic Framework. The subscribers of the capital are the founder govern­ments and, as such, it was established by government treaty. In addition, an Islamic bank/investment company was established in Bahamas in 1977 as a multi-national holding company under the name of Islamic Investment Company, ICC limited. Its purpose was to establish 'Mudaraba' (partnership companies) in various parts of Islamic countries. The company has established two 'Mudaraba' subsidiaries in Sharjah and Pakistan. A second example of Islamic banking in the West comes from Luxembourg, where the Islamic Banking System International Holding was established in 1978 as a joint-stock company. Its purpose was to establish international Islamic banks in different parts of the western countries where there are communities of Muslims, and to participate in investment projects in Islamic and non-Islamic countries. The company's investment operations are spread over different parts of the world. As a holding company, it established a new affiliated company in London in June 1983 under the name of Islamic Finance House, and another in Denmark in 1982 under the name of the Islamic Bank International of Denmark. Dar-al-mal-al-Islami (DMI), based in Geneva, was established in 1981. DMI aims to foster an Islamic financial system based on equity and social justice by incorporating three types of insti­tutions - banking, investment and insurance. Thus, DMI may be considered as a major multi-national company, the activities of which consist of Islamic investments, Islamic solidarity (insur­ance) and Islamic banking operations (Ashker 1987, pp.18-35). DMI group has adopted a high profile and ambitious campaign to open an Islamic bank and investment in over thirty countries. The second major group is the Kuwait Finance House (KFH). It was established in 1978. The Kuwait government and the remainder by private Kuwait investors own Forty-nine percent of the KFH. Total value assets of KFH at the end of 1987 was $3.92 billion with a deposit of $3.62 billion. The source of KFH's liquidity is cheap deposits from faithful Muslims. The group has concentrated on large scale project financing, particu­larly in real estate. The KFH does have a minimum account size and, therefore, it could be argued that the institution only caters to the richer members of the society. Another dynamic Islamic banking conglomerate is the 'Al-Baraka' group, which operates banks, investment companies, finan­cial advisory and management companies in more than a dozen coun­tries. It launched its activities only in 1982, but the group now has a total asset of over $2.7 billion. It is considered to be one of the fastest growing Islamic enterprises. The group has operations in Tunisia, Sudan, Bahrain, Turkey, and Malaysia. It is the first group to obtain a license to launch Islamic banking in London. Complete Islamization Efforts A development of complete Islamization of banking at national levels had been gaining momentum since the second half of the 1970s. The movement took basically two forms. First, an attempt was made to establish Islamic financial institutions side-by-side with traditional banking. In such attempts, two types of institutions were evolved: Islamic banks were established mostly in Muslim countries; and Islamic investment and holding companies started operating in some Muslim but mostly in non-Muslim countries. These institutions claimed to be operating without interest in their transactions and competed with conventional banks to attract deposits. The majority of these institutions were established through private initiatives. Second, an attempt was made to restructure the whole financial system of the economy in accordance with the teachings of Islam. This second approach was accomplished in two distinct ways, as exemplified by the changes in Iran and Pakistan. Complete Islamization efforts of some leading countries are now discussed. Iran The process of Islamization of Islamic banking in Iran has proceeded in three distinct phases. Nationalization, restructuring, and reorganization of the entire banking system characterized phase one taking place between 1979 and 1982. External and internal developments did not allow the policy makers to develop a coherent plan for Islamization of the banking system, although various piecemeal attempts were made towards this objective (Khan & Mirakhor 1989). The second phase began in 1982 and lasted until 1986. It was a phase primarily characterized by adoption of legislative and administrative steps in order to implement a clearly articulated model of Islamic banking (Iqbal & Mirakhor 1987, p.106). The law for Riba-free banking was passed in August 1983, giving a very short deadline of one year to the banks to convert their deposits in line with Islamic law and their total operations within three years from the date of the passage of the law. The third phase, which continues till now, began in 1986. This phase defines the role of the Islamic banking system differently from the earlier phases. The system is now expected to be an integral part of the Islamic government, and thus, a direct instrument of its policies. This development is a direct result of the political debate within Iran surrounding the proper role of the government in an Islamic economy. This debate culminated in a ruling by Imam Khomini, which confirmed a highly activist role for the central government in shaping the structure of the Iranian economy and legitimized a trend in the interventionist posture of the government vis-à-vis the economy. The ruling also indirectly affirmed the use of the banking system as an instrument for promoting social and economic development. The banking sector has been used as an instrument to restructure the Iranian economy. The restructuring was essentially directed towards the shifting of financial resources from services and consumption to the production sector in four ways. First, credit to the service sector, which constituted some 55 percent of the GDP (1984-85), has been drastically reduced to halt its expansion in the short-run and curtail its size in the mid-term. Second, using all available modes of Islamic finance to help farmers to improve and expand production has used bank credit to encourage the growth of the agricultural sector. Coupled with substantial government subsidies for seed, fertilizer, machinery, and crop insurance, the credit policy of the banking system is aimed at reviving the agricultural sector. Third, Islamic banking has been used to create incentives for the development of a co-operative sector spanning agriculture, industry, and trade. Fourth, the banking system, in partnership with the government, undertakes to finance large industrial projects and investment in social overhead capital (Mirakhor & Zaidi 1988, p.3). Pakistan Pakistan adopted a policy of gradual transformation of its banking system from February 1979 after several years of study and preparation by the government-appointed Council of Islamic Ideology (CII). The process started when the President of Pakistan announced that interest was to be removed from the economy within a period of three years. Three of the specialized credit institutions--the House Building Corporation, National Investment Trust, and Mutual Trust Funds of Investment Corporation of Pakistan--were to remove interest from their financing operations immediately. Following the directive issued by the government in January 1981, separate counters were opened in the commercial banks for accepting deposits on a PLS basis. Commercial banks were instructed to create separate accounts for deposits in their interest-based operation and those received on the PLS basis. A series of directives were issued in 1981 by the State Bank of Pakistan permitting commercial banks to issue non-interest based credit to finance exports and imports of commodities, and to provide financing for trading operations and housing. In June 1984, the government announced discontinuation of dual window operations of the banking system within one year. As a result, all financial operations of the banking and financial system, except the foreign currency deposits which continue to earn fixed interest, were brought under the non-interest based modes of financing. However, along with the change of regime the progress of Islamic banking has been constrained by lack of operating Islamic ethical norms in the business environment. The posture of the policy makers toward Islamic banking in Pakistan has been marked by a great deal of caution. The banking community has shown a reluctance to engage in medium- or long-term industrial financing on a profit-sharing basis. Islamic banking in Pakistan appears to be at a crossroads, and if there is to be further progress the regulatory and legal conditions must be such that the system will have a fair chance to perform as expected. Bangladesh In August 1974, Bangladesh signed the Charter of Islamic Development Bank and committed itself to reorganise its economic and financial system as per Islamic Shariah. In January 1981, Late President Ziaur Rahman while addressing the 3rd Islamic Summit Conference held at Makkah and Taif suggested, ''The Islamic countries should develop a separate banking system of their own in order to facilitate their trade and commerce.'' This statement of Late President Ziaur Rahman indicated favourable attitude of the Government of the People's Republic of Bangladesh towards establishing Islamic banks and financial institutions in the country. Earlier in November 1980, Bangladesh Bank, the country's Central Bank, sent a representative to study the working of several Islamic banks abroad. In November 1982, a delegation of IDB visited Bangladesh and showed keen interest to participate in establishing a joint venture Islamic bank in the private sector. They found a lot of work had already been done and Islamic banking was in a ready form for immediate introduction. Two professional bodies -Islamic Economics Research Bureau (IERB) and Bangladesh Islamic Bankers' Association (BIBA) made significant contributions towards introduction of Islamic banking in the country. They came forward to provide training on Islamic banking to top bankers and economists to fill-up the vacuum of leadership for the future Islamic banks in Bangladesh. They also held seminars, symposia and workshops on Islamic economics and banking throughout the country to mobilise public opinion in favour of Islamic banking. Their professional activities were reinforced by a number of Muslim entrepreneurs working under the aegis of the then Muslim Businessmen Society (now reorganised as Industrialist & Businessmen Association). The body concentrated mainly in mobilising equity capital for the emerging Islamic bank. At last, the long drawn struggle to establish an Islamic bank in Bangladesh became a reality and Islami Bank Bangladesh Limited was established in March 1983 in which 19 Bangladeshi national, 4 Bangladeshi institutions and 11 banks, financial institutions and government bodies of the Middle East and Europe Including IDB and two eminent personalities of the Kingdom of Saudi Arabia joined hands to make the dream a reality. Later, other three Islamic Banks were established in the country. Islami Bank Bangladesh Limited (IBBL) is considered to be the first interest free bank in Southeast Asia. It was incorporated on 13-03-1983 as a Public Company with limited liability under the companies Act 1913. The bank began operations on March 30, 1983. IBBL is a joint venture multinational Bank with 63.92% of equity being contributed by the Islamic Development Bank and financial institutions like-Al-Rajhi Company for Currency Exchange and Commerce, Saudi Arabia, Kuwait Finance House, Kuwait, Jordan Islamic Bank, Jordan, Islamic Investment and Exchange Corporation, Qatar, Bahrain Islamic Bank, Bahrain, Islamic Banking System International Holding S. A., Luxembourg, Dubai Islamic Bank, Dubai, Public Institution for Social Security, Kuwait Ministry of Awqaf and Islamic Affairs, Kuwait and Ministry of Justice, Department of Minors Affairs, Kuwait. In addition, two eminent personalities of Saudi Arabia namely, Fouad Abdul Hameed Al-Khateeb and Ahmed Salah Jamjoom are also the sponsors of IBBL. The total number of branches as of December 2001 stood at 121. The authorized capital of the bank is Tk. 500 million and subscribed capital is Tk. 160 million. Al-Baraka Bank Limited, often called the second Islamic bank in Bangladesh, commenced banking business as a scheduled bank on May 20, 1987. It is a joint venture enterprise of Al-Baraka Investment and Development Company a renowned financial and business house of Saudi Arabia, Islamic Development Bank, a group of eminent Bangladesh industrialists and the Government of Bangladesh. The authorized capital of the bank is Tk 600 million and the paid up capital is Tk. 204.07 million. The Bank currently operates 34 branches throughout the country. Apart from extending conventional commercial banking facilities to its customers, the bank has also given substantial financial support to the development of industrial and real estate projects. Al-Arafa Islami Bank Bangladesh Limited commenced its business as a scheduled bank on September 27, 1995. The authorized capital of the bank is Tk. 1,000 million while its paid up capital is Tk. 101.20 million. The Bank follows the Shariah principles in investment and invests its funds under Mudaraba, Musharaka, Bai-Muajjal, Bai-Salam, etc. Up to 2001, the Bank has been operating its business through 40 branches all over the country. Social Investment Bank Limited is another bank guided by the Islamic principles. It started its journey in November 1995. Its authorized capital is Tk. 1,000 million and paid-up capital is Tk. 118.36 million. Up to September 2001, the Bank has been operating its business through 15 branches.

Islamic Banking: Some Conceptual Issues

What is Islamic Banking Islamic banking has been defined in a number of ways. The definition of Islamic bank, as approved by the General Secretariat of the OIC, is stated in the following manner. "An Islamic bank is a financial institution whose status, rules and procedures expressly state its commitment to the principle of Islamic Shariah and to the banning of the receipt and payment of interest on any of its operations"(Ali & Sarkar 1995, pp.20-25). Shawki Ismail Shehta viewing the concept from the perspective of an Islamic economy and the prospective role to be played by an Islamic bank therein opines: "It is, therefore, natural and, indeed, imperative for an Islamic bank to incorporate in its functions and practices commercial investment and social activities, as an institution designed to promote the civilized mission of an Islamic economy" (Ibid). Ziauddin Ahmed says, "Islamic banking is essentially a normative concept and could be defined as conduct of banking in consonance with the ethos of the value system of Islam" (Ibid). It appears from the above definitions that Islamic banking is a system of financial intermediation that avoids receipt and payment of interest in its transactions and conducts its operations in a way that it helps achieve the objectives of an Islamic economy. Alternatively, this is a banking system whose operation is based on Islamic principles of transactions of which profit and loss sharing (PLS) is a major feature, ensuring justice and equity in the economy. That is why Islamic banks are often known as PLS-banks.

Objectives of Islamic Banking

The primary objective of establishing Islamic banks all over the world is to promote, foster and develop the application of Islamic principles in the business sector. More specifically, the objectives of Islamic banking when viewed in the context of its role in the economy are listed as following: ·      To offer contemporary financial services in conformity with Islamic Shariah; ·      To contribute towards economic development and prosperity within the principles of Islamic justice; ·      Optimum allocation of scarce financial resources; and ·      To help ensure equitable distribution of income. These objectives are discussed below.

Distinguishing features of Islamic Banking

An Islamic bank has several distinctive features as compared to its conventional counterpart. Chapra (1985, PP.154-57) has outlined six essential differences as below: Abolition of interest (Riba): Since Riba is prohibited in the Quran and interest in all its forms is akin to Riba, as confirmed by Fuqaha and Muslim economists with rare exceptions, the first distinguishing feature of an Islamic bank must be that it is interest-free.         Adherence to public interest: Activity of commercial banks being primarily based on the use of public funds, public interest rather than individual or group interest will be served by Islamic commercial banks.  The Islamic banks should use all deposits, which come from the public for serving public interest and realizing the relevant socio-economic goals of Islam. They should play a goal-oriented rather than merely a profit-maximizing role and should adjust themselves to the different needs of the Islamic economy. Multi-purpose bank: Another substantial distinguishing feature is that Islamic banks will be universal or multi-purpose banks and not purely commercial banks. These banks are conceived to be a crossbreed of commercial and investment banks, investment trusts and investment -management institutions, and would offer a variety of services to their customers. A substantial part of their financing would be for specific projects or ventures. Their equity-oriented investments would not permit them to borrow short-term funds and lend to long-term investments. This should make them less crisis-prone compared to their capitalist counterparts, since they would have to make a greater effort to match the maturity of their liabilities with the maturity of their assets. More careful evaluation of investment demand:  Another very important feature of an Islamic bank is its very careful attitude towards evaluation of applications for equity oriented financing. It is customary that conventional banks evaluate applications, consider collateral and avoid risk as much as possible. Their main concern does not go beyond ensuring the security of their principal and interest receipts. Since the Islamic bank has a built in mechanism of risk sharing, it would need to be more careful in how it evaluates financing requests. It adds a healthy dimension in the whole lending business and eliminates a whole range of undesirable lending practices. Work as catalyst of development: Profit-loss sharing being a distinctive characteristic of an Islamic bank fosters closer relations between banks and entrepreneurs. It helps develop financial expertise in non-financial firms and also enables the bank to assume the role of technical consultant and financial adviser, which acts as catalyst in the process of industrialization and development.

Conventional and Islamic banking

For the interest of the readers, the distinguishing features of the conventional banking and Islamic banking are shown in terms of a box diagram as shown below: Banks Islamic Banks 1. The functions and operating modes of conventional banks are based on manmade principles. 1. The functions and operating modes of Islamic banks are based on the principles of Islamic Shariah. 2. The investor is assured of a predetermined rate of interest. 2. In contrast, it promotes risk sharing between provider of capital (investor) and the user of funds (entrepreneur). 3. It aims at maximizing profit without any restriction. 3. It also aims at maximizing profit but subject to Shariah restrictions. 4. It does not deal with Zakat. 4. In the modern Islamic banking system, it has become one of the service-oriented functions of the Islamic banks to collect and distribute Zakat. 5. Leading money and getting it back with interest is the fundamental function of the conventional banks. 5. Participation in partnership business is the fundamental function of the Islamic banks. 6. Its scope of activities is narrower when compared with an Islamic bank. 6. Its scope of activities is wider when compared with a conventional bank. It is, in effect, a multi-purpose institution. 7. It can charge additional money (compound rate of interest) in case of defaulters. 7. The Islamic banks have no provision to charge any extra money from the defaulters. 8. In it very often, bank's own interest becomes prominent. It makes no effort to ensure growth with equity. 8. It gives due importance to the public interest. Its ultimate aim is to ensure growth with equity. 9. For interest-based commercial banks, borrowing from the money market is relatively easier. 9. For the Islamic banks, it is comparatively difficult to borrow money from the money market. 10. Since income from the advances is fixed, it gives little importance to developing expertise in project appraisal and evaluations. 10. Since it shares profit and loss, the Islamic banks pay greater attention to developing project appraisal and evaluations. 11. The conventional banks give greater emphasis on credit-worthiness of the clients. 11. The Islamic banks, on the other hand, give greater emphasis on the viability of the projects. 12. The status of a conventional bank, in relation to its clients, is that of creditor and debtors. 12. The status of Islamic bank in relation to its clients is that of partners, investors and trader. 13. A conventional bank has to guarantee all its deposits. 13. Strictly speaking, and Islamic bank cannot do that.

'Rural Development Scheme'

 'Rural Development Scheme' has been introduced in 1995 to cater to the investment needs of the agriculture and rural sector to create opportunity for generation of employment and raising income of the rural people with a view to alleviate poverty. It is treated as first Islamic Microfinance Model in the Country & abroad.

Purpose, Period and Ceiling of investment

Sl.	Sector of Investment	Duration	Ceiling of Investment(BDT)
1	Crop Production	1 year	25,000/-
2	Nursery and commercial production of Flowers & Fruits	1 year	50,000/-
3	Agriculture Implements	1 to 3 years	50,000/-
4	Live stocks	1 to 2 years	50,000/-
5	Poultry & Duckery	1 year	35,000/-
6	Fisheries	1 to 2 years	50,000/-
7	Rural Transport	1 year	20,000/-
8	Rural Housing	1 to 5 years	50,000/-
9	Off-firm activities	1 year	50,000/-

The clients are provided investment maximum of BDT 10,000/-($145) at the first time and the good performers are given enhancement, upon his requirement, by BDT 2,000 to BDT 5,000 in every next term up to the ceiling of a particular sector.

Rate of Return: The rate of return is determined by the authority from time to time. At present, the rate of return is 12.5%. Timely repayment is encouraged by offering 2.5% rebate

Savings Plan:

MSA-RDS: The members of the Group have to open Mudaraba Savings Account (MSA-RDS) in their individual names with the Branch from the very inception of the Group activity. The weekly compulsory savings is minimum Tk.20.00 only

MSS-RDS: Able members can open Mudaraba Special Savings(MSS-RDS) by depositing minimum Tk.100/- only per month

Center Fund: Each member of the Group has to deposit minimum Tk.5.00 only per week as Centre Fund. This Fund is kept by opening a Mudaraba Savings Account in the name of the respective centre. This Fund is utilized for the welfare of the members by way of Quard as per decision of the Centre in the weekly meeting. This account is operated by Centre Leader & Deputy Centre Leader jointly

Modes of Investment: The Branch selects any of the following modes depending upon the sector and purpose of investment :      
▪          Bai-Muajjal
▪           Musharaka

Sanction and Disbursement:

1.      On the basis of the list submitted by the Field Officers, the Investment Committee of the Branch carefully scrutinizes the applications and sanction the investment at the Branch level. The Investment Committee consists of Manager, Project Officer and the Field Officer.

2.      After sanction of the investment, the Branch complete documentation formalities and then disburse the amount with the help of the Investment Officer and Field Officer.

3.      Investment under RDS in Bai-Muajjal mode, where actual cost, quality or suppliers of the goods cannot be determined earlier, proposed goods are purchased to the debit of Suspense A/c (Purchase A/c). After purchase of the goods and handing over the same to the clients, investment is made by adjusting Purchase A/c.

4.      Where the Bank officials can not go to the market for purchasing the goods, the Bank nominate a buying agent and handover the goods to the client after intimation to the Bank.

5.      In all the cases, Branch must ensure strict adherence to the banking and Shariah norms

Supervision, Follow-up and Monitoring:

1.      The investment under the Scheme is fully supervised. The Branch has to take the responsibility for the investment as well as recovery. To ensure 100% recovery the Field Officers make very close and intensive supervision over the clients. Moreover, the group approach is very helpful in this process - Clients are motivated, induced and pressed by the fellow members in recovering the investment.

2.      One each Field Officer is appointed for 400 investment clients and one or more Assistant Officer/Officer is engaged in the Branch as Project Officer to supervise the activities of the Field Officers. An Asstt. Project Officer (APO) is also engaged where more than 10 Field Officers are working in the Branches.

3.      One or more officials in each Zonal Office are assigned as RDS Zone Officer to supervise the RDS activities of the Branches under the Zone. The Zone Officers visit the Branches under their respective Zone at least twice in a year.

4.      Head Office Officials also visit the activities in the Branch level once in a year.

5.      Moreover, weekly, monthly, quarterly and annual statement of RDS of the Branches are prepared and sent to the higher authority to monitor and evaluate the activities regularly.

Investment under MEIS:

A special scheme has been introduced in the name and style of Micro Enterprise Investment Scheme (MEIS) in 2005 in order to satisfy the graduated clients who are already availed highest limit of investment under the Scheme.

The ceiling of MEIS investment is BDT 50,000/-($725) to BDT 300,000/-          ($ 4348) and Local small traders & entrepreneurs may also be provided this facilities under the limit.

The existing Field Officers and Project Officers explore the possibilities of investment in the areas under the aforesaid Schemes and recommend to the Branch for sanction. After scrutiny the proposals, the Branch Manager will approved the same if found satisfactory.

The entire Scheme has been chalked out in such a way so that all the persons within the command/target areas may be brought within the fold of Bank's Investment for productive economic activities.

Performance of RDS:

Islami Bank Bangladesh Limited launched its Rural Development Scheme (RDS) in 1995. In the mean time, 250 Branches of the Bank have been operating the activities of the Scheme in their respective areas. These Branches are working among the poor in 18,591 villages of 64 districts of the country. Present number of members is 915,209 since beginning the scheme. The members are provided investment facilities an amount of BDT 107,307.21 million against which the outstanding was 17,830.10 million . Rate of recovery of the Scheme is more than 99.30%.

		Fig. in million Taka ($)
Sl.	Areas of performance	No.&Volume/Amnt.
Area Coverage
1	No. of Branches handling the Scheme	250
2	No. of Villages (no. of total village in the country is about 87,000)	18,591
3	No. of Districts (no. of total district in the country is 64)	64
4	No. of Centers	28,122
5	No. of Groups	176,765
6	No. of Members (existing)	915,209
7	% of Women members in the Scheme	79%
8	Average no. of members per Centre (expected no. 40)	33
9	No. of Clients (Who availed investment)	580,251
Financial Statement (RDS & MEIS)
10	Cumulative disbursement (since inception)	107,307.21
11	Present outstanding	17,830.10
12	Overdue	132.00
13	Percentage of Recovery	99.30%
14	Balance of Members’ Savings (including Centre Fund)	5,992.50
Financial Statement (MEIS)
15	Number of clients under MEIS	58,551
16	Cumulative disbursement (since 2005)	29,069.41
17	Present outstanding	7,372.22
Manpower Position
18	No. of Field Officers	2,492
19	No. of Project Officers	217
20	No. of Zone Officers	14

UPDS:

As Islami Bank Bangladesh Limited established with a view to develop welfare oriented banking system and to ensure equity and justice in the field of all economic activities, the Board of Directors in its emergent meeting held on 19.02.2012 approved a new Scheme under the name & style of “Urban Poor Development Scheme (UPDS)”. The Scheme activities started formally from 14.05.2012 through Gandaria Branch, Dhaka.

Objectives of UPDS

To alleviate urban poverty through Investment in income generating activities

To improve the livelihood of urban poor specially the slum dwellers

To improve the Health, sanitation & education status of urban poor specially the children & women

Help to improve the environment of the poor

Reduce the level of crime & violence thorough the development of ethical and religious values.

 Table 2: Investment Avenues, Higher Limits and Duration

Investment Avenues	Higher Limit	Duration	Remarks
Crop production	Tk. 10,000/-	Highest 1 (one) year	Crops of 21 varieties
Fish cultivation in ponds	Tk. 25,000/-	Highest 3 (three) years
Irrigation	Tk.   5,000/-	Highest 1 (one) year	According to need
Agriculture and irrigation implements	Tk. 25,000/-	Highest 3 (three) years	10% borrowers equity
All non-agricultural sectors	Tk. 10,000/-	Highest 1 (one) year	For 343 non-agricultural items payable in weekly installment
Rickshaw, van and rural transports	Tk.   5,000/-	Highest 2 (Two) years	Payable in weekly installment
Hand Tube well	Tk.   3,000/-	Highest 3(Three) years
House-building materials	Tk. 15,000/-	Highest 3(Three) years

Table 3: Categories and the number of activities financed under RDS

Activity types  (non-agri)	Types of activities
1. Manufacturing and processing     (126)	Bamboo works, cane works, pottery, muri making, snacks making, tailoring, sugarcane crushing, mending works, tin production, rickshaw making and mending, sweeping materials, sweet meat, furniture making, medicine production, umbrella mending, cake preparation, plastic works, net making, thread purchase, drum purchase, house mending, wool works, wheel mending, box mending, nut processing, kantha making, rickshaw-hood making, iron materials making, cap making, thread works, pickle preparation, printing works, tin purchase, radio mending, misri making, sawing, laundry works, procurement of machinery, candle making, sanitary works, welding, embroidery, dry sweats making, metallic net making, sweet cake preparation, cow-dung fuel balls, toy making, packet making, nimki making, cosmetic production, spectacle making, flour making, comb making, mosquito net making ghee making, rope making, lamp (kupi) making, chanachur making, jute goods fabrication, shoe making, mosquito coil making, hand fan making, quilt making, mustard oil making, jewelery works, chun making, mat making, chira making, saree making, etc.
2. Service activities: (33)	Rickshaw, barber shop, hiring of irri pump, sale of news papers, curt, bullock curt, mike hiring, feri boat, livestock treatment, horse curt, buffalo curt, dentist, boating, decorator service, baby taxi, construction works, sewing machine, rice machine, bi-cycle purchase, spray machine purchase, carpentry, wheat mill, van procurement, electric iron purchase, fan making/mending etc.
3. Trading(82)
4. Shops 74 activities
5.  Hacking:     5 activities	Bamboo basket, old cloths, peanuts grocery
6.  Nursery:   10 activities	Vegetables, water melon cultivation, ginger cultivation, brijal cultivation, turmeric cultivation, bamboo production, papaya production, chilli production and onion production
7. Livestock raising 13 activities	Milking cow, bullocks, cow fattening, poultry raising, sheep raising, duck raising, buffalo rearing, bees raising, pigeon raising etc