Rural Development Scheme (RDS) of Islami Bank Bangladesh Limited (IBBL)
EXECUTIVE SUMMARY
Rural Development Scheme (RDS) of Islami Bank Bangladesh Limited (IBBL) provides micro finance services following the ideals and teachings of Islam. The main objective of RDS is to implement an integrated and coordinated program for fulfillment of basic needs and overall upliftment of targeted poor households. The other objectives include: (a) extension of the bank’s investment programs to rural farming and off –farming activities; (b) providing self- employment facilities for the destitute people; (c) providing investment facilities for sinking tube- well and for housing ; (d) bring both male and female within the purview of income generating activities and thereby helping to be self – sustainable; (e) providing education and Medicare facilities to the downtrodden people; (f) generating moral and economic upliftment of the rural poor. The launching of RDS by IBBL to provide financial services to the rural poor on Shariah modes, keeping in view the welfare objective based on Ad and Ihsan can be termed as a timely intervention with national approach of poverty alleviation.
The RDS is being implemented by the branches of IBBL which is basically a multi – product firm. Along with other investment schemes, the RDS is implemented. The position of income and expenditure of RDS up to December 31, 1999 shows an amount of total income of Taka 31.78 million and an expenditure of Taka 35.82 million which resulted an amount of loss of Taka 4.04 million although it was noted that balance in the Risk Fund Account of RDS was Taka 6.53 million. It invites the concerned of the effectiveness of RDS. But there has not been any study on the effectiveness of RDS. This paper attempts, therefore, to analyze that to what extent RDS as a program is sustainable, how RDS could be expended through out the country in all the villages within the year 2020, The cost-benefit analysis of RDS has the following findings :
Implementation of RDS through formation of RDS unit with minimum 7 supervisors working under the present scale of pay and allowances with other admissible operational costs, 60 groups and 10 centers and an investment of Tk 5,000/= per member of a group would be financially viable. It would remain profitable with the increase of investment amount, costs, and unit members of RDS over the periods of Time.
The impact of RDS on the sustainability of the branches will be positive.
A proposed framework of RDS unit for inter-linkage between the RDS and the mainstream banking of IBBL will be operationally successful if other things remain the same.
The primary operations of RDS indicate that profitable expansion of RDS is possible in all the villages out the country within the year 2020 if RDS is reorganized as per proposed RDS unit.
CHAPTER 1
INTRODUCTION
Worldview of the World Bank slates that three-fifths of the world’s people in the poorest 61 countries receive 6 percent of the Worlds income with per capita income less than $ 2 a day. Moreover, their poverty goes beyond income. It indicates that a huge poverty exists among the World’s people at the beginning of the 21ST century.
In Bangladesh, the number of people in extreme poverty was 29.1 percent in the year 19962.It is estimated that 11.88 million households in Bangladesh with an estimated population of 61.8 million or 47.5% of the total population are deemed to be below the poverty line. So the country needs to maintain high economic growth rate with higher rate of employment including self-employment. Until the emergence of the concept of “Micro-Finance”, government, professionals and international agencies had approached the issue of macro-economic growth through green revolution and industrial development. Supply of bank credit for agricultural and industrial finance was considered as one of the major policy interventions for attaining economic growth. Such policy intervention had contributed to increasing poverty incidence and inequitable distribution of resources due to the fact that the conventional collateral-based approach to provide bank credit had made access to credit for the poor households a forgotten domain, In essence, the functions of the commercial banks and development banks were not appropriate for lending to poor households.
1.1 Statement of the Problem
Poor households are suffering from resource constraint and they are skill-poor also, which limit their ability to utilize economic opportunities for growth. It took the world community, until early seventies, to recognize the fact that relaxation in resource and skill constraints can and will contribute to improvement in income level as well as in household portfolio. The outreach and coverage of the poor households and villages of the country are not enough to meet the huge demand for micro-credit. Even With the intervention of so many MFIs, NGOs, Government Programmes, and Commercial Banks, there are a huge number of villages and poor households not yet brought within coverage of financial services. The high interest rate and other rigid conditions of NGOs and the preferential or differential choice of the foreign aided NGOs regarding areas, clienteles (Caste and Creed), created lop-sided development in the micro-financial services. Moreover, the religion cultural influence of– the foreign aided NGOs, is seriously affecting our own culture and customs. In a word, the mission and vision of the so-called NGOs have fundamental conflicts with our own tradition, custom and endangering our own religious fiber of the society. This has been reflected in popular resentment against their activities in some areas of’ the country.
In this perspective, the launching of RDS by IBBL to provide financial services to the rural poor on Shariah modes, keeping in view the welfare objective based Acll and Ihsan can be termed as a timely intervention with national approach of poverty alleviation.
1.2 Objectives of the Study
- Broad objective:
To discuss the Rural Development Scheme of IBBL, it’s Prospects, Problem and Suggestions with Further Development.
- Specific objective:
To measure the degree of satisfaction level of customer.
To present an overview and brief introduction of Islami Bank Bangladesh Limited.
To find out the factors on which the customer satisfaction level depends.
To suggest ways of improving the service standard and satisfaction level of the customers.
1.3 Significance of the Study
The purpose of conducting this research is to find out the prospects, problem and suggestions with further development of the Rural Development Scheme of IBBL.
§ This study will help the employers to gain more knowledge about the customer and will help them to redefine their strategies to satisfy the customers. It will also help them to analyze more about their client.
§ After conducting the study the employees will be more motivated to adopt new ways of approaching the customers.
§ This report will not only help the management of IBBL, but also the stakeholders on a whole. Different financial institutions can be motivated to take an essence of this report in order to improve their different features and ways of improving their customer service.
§ People may come to know about the different advantages of having loan, which will increase the volume of profit of the bank and boost up the economy of the country.
1.4 Scope And Limitations of the Study
Since the most important factor for any service sector, to retain in the business, is to satisfy their customers, they need to take steps to know about the customer’s satisfaction level. This report is to find out the prospects, problem with suggestions for further development of the Rural Development Scheme of IBBL, which affects the revenue of the bank. The scope is that, this report may give ideas to the management, so that they can take decisions regarding modifying the strategies of providing services to the customers.
However, there are some limitations of this study which are discussed below:
§ Results that appear after conducting this study may not reflect the same situation for all the other branches of IBBL.
§ This research may not contain the actual scenario of the respected topic as the sample size is not that large.
CHAPTER II
Literature Review
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Background of Islami Bank Bangladesh Limited
Islami bank Bangladesh limited (IBBL) was incorporated as the first shariah based –interest free Bank in South cast Asia on 13th march 1983 as a public company with limited liability under the company act, 1913. The Bank started functioning with effect from 13th March 1983. IBBL is the first private sector Islamic Bank in south East Asia. The establishment of this bank ushered a new area in Bangladesh. The third largest Muslim country of the worlds, the bank is committed to run all its activities based on Islamic shariah. The first branch of the bank was at Motijheel, i.e. local office Dhaka. The bank was formally inaugurated on 12th August 1983. Authorized capital capital of the bank is 3000 million and paid up capital is 2304 million. Foreign and local shareholders holdings are of 58% and 42% of the paid up capital respectively.
Mission of IBBL
To establish Islamic banking through the introduction of a welfare oriented banking system and also ensure equity and justice in the field of all economic activities, achieve balanced growth and equitable development through diversified investment operations particularly in the priority sector and less developed areas of the country. Islamic banking encourages socio economic uplift and financial services to the low income community particularly in the rural areas of the country.
Vision of IBBL
- Vision is to always strive to achieve superior financial performance, be considered a leading Islamic banking by reputation and performance.
- Goal is to establish and maintain the modern banking techniques, to ensure the soundness and development of the financial system based on Islamic principles and to become the strong and efficient organization with highly motivated professional, working for the benefit of people, based upon accountability transference and integrity in order to ensure of financial systems.
- The Bank will try to encourage saving in the form of direct investment.
- The Bank will also try to encourage investment particularly in projects which are more likely to lead to higher employment.
- Special feature of IBBL
- All activities of conducted on interest free system in accordance with Islamic sharia principles.
- Investment is made through different modes as per Islamic Shariah.
- Investment income of the bank is shared with the Mudaraba depositors according to an agreed upon ratio ensuring a reasonably fair rate of return on their deposits.
- Aims to introduce welfare oriented system and also to establish equity and justice in the field of economic operation.
- Extend socio-economic and financial service to individuals of all economic backgrounds with strong commitment in rural advancement uplift.
- Vital role plays in human resource development and employment generation particularly among the educated unemployed youths.
- Portfolio of Investment and investment policy have been specially tailored to achieve balanced growth diversified and equitable development through diversified investment operations particularly in the priority sectors and in the less developed areas of the national economy.
- Ensure shariah compliance through regular and effective guidance of powerful and highly esteemed shariah Council consisting of 13 members representing shariah scholars.
ISLAMI BANK TRAINING AND RESEARCH ACADEMY
(IBTRA)
The principles and working procedures of Islamic banks are completely new and different from the conventional banks. There is an inevitable need fro training of the employees of the banks to orient and attune them to the new system of Islamic banking. To cater to this need. Islami bank training and research academy (IBTRA) was established in 1984, soon after the inception of the Bank.
The activities of IBTRA cover both training and research on various aspects of Islamic banking. The Academy developed a rich library of its own with a treasure of valuable books on different subjects including Islamic economics, banking, comparative philosophies and journals of home and abroad and research articles and documents. Employees of the Bank, learners and researchers have been taking full advantages or the library.
Keeping in view the existing and future training requirement of the Bank and also to generally cater such needs of different Islamic banking & financial institutions of the region, the management of Islami bank training and research Academy has been placed at the disposal of an Academic council consisting of 3 directors of the board, Management Executives of the bank, Shariah scholar, renowned academicians and representatives of reputed institutions engaged in the training of bank officials the country.
More over Islami Bank Training and Research Academy has introduced Diploma in Islamic Banking since 1998.
Mission and Vision of RDS
A mission and vision was conceived of to bring all the villages of the country under the coverage of the Scheme within the year, 2020 Keeping the above perspective and changed circumstances in view, the Management of the Bank presented a comprehensive Action of RDS for the year (2006-2010), subsequently the Board of Directors in its Emergent meeting held on 24-07-2005 agreed in principle with the plan.
The main objectives of the Scheme are:
i. To extend investment facilities to agricultural, other farming and off-farming activities in the rural areas.
ii. To finance self-employment and income generating activities of the rural people, particularly the rural unemployed youths and the rural poor.
iii. To alleviate rural poverty through integrated rural development approach.
iv. To extend investment facilities for hand tube-wells and rural housing, keeping in view the needs of safe drinking water and housing facilities of the rural dwellers.
v. To provide education and Medicare facilities to the down-trodden people.
CHAPTER III
Data Source
Both primary and secondary data are used for the research purpose. Primary data is often known as the survey data. It is collected directly to help solve the problem at hand. The secondary data will also help me to get more insights of the problem.
- Primary sources:
§ Structures/unstructured questionnaires for customer opinions.
§ Informal discussions with the IBBL personnel.
§ Observation of banking activities.
· Secondary Sources:
§ Website of Islami Bank
§ Different brochures and newsletters of IBBL.
Presenting Results
This report contains:
§ The introduction part includes the problem statement, scopes, and limitations of the study.
§ Second chapter is the organization profile part. It provides the historical background of Islami Bank.
§ Third chapter provides the methodology of data collection.
§ The fourth chapter of this report is the most important part, as it provides the data findings or analysis.
§ Last but not the least, in the final chapter there are the conclusion and recommendation provided for“Rural Development scheme” of Islami Bank Bangladesh Limited.
CHAPTER IV
Data Analysis
Concept of Rural Development and Rural Financing under Islamic Banking Framework
Concept of Development and Rural Development in Islam
The Islamic concept of development has been derived from four key concepts such as Tawheed (unity), Rabubiyah (sustainer), Khalifah (representative) and Tazkiyah (purification). These concepts together present a worldview of human life providing answers to some key questions. These are: why man is created, how he is related to his god, what is the relationship between man and man, and what is the status of man in this world and for that matter what changes is required to be brought about in him. According to Prof. Khurshid Ahmad, “The Islamic concept of development is comprehensive and includes moral, spiritual and material dimensions.
Development, therefore, means development of the man and his physical and socio-cultural environment. As such human attitudes, incentives, tastes and aspirations are equally important as policy variables such as: physical resources, capital, labor, education, skill, and organization. Among the dynamic principles of social life, Islam has particularly emphasized optimal utilization of resources and their equitable use and distribution and promotion of all human relationships on the basis of Right and Justice. Islam commends the value of ‘shukr’ (thankfulness to God by availing of His blessings) and ‘adl’ (justice) and condemns ‘kufr’ (denial of Allah His blessings) and ‘julm’ (injustice).
Under the above broader conceptual framework of development, the following two verses of the Holy Quran set the redistributive pattern of an Islamic economic system:
“Resource should not circuit only among the wealthy of you.”
“Of your wealth have the right of the poor and the needy.”
The foregone discussion leads us to a conclusion that Islam stands for a development approach where free and uninterrupted operation of market ensures optimum utilization of resources and encourages a distribution pattern in which resources are circuited back from the well to do to the relatively weak. In order to do that a number of interventions are brought into effect. For example, fiscal and monetary policies, including commercial flow of investible funds, are to be designed in a way that resources are to be channeled to the relatively weak and disadvantaged sections of population. Also, there should be a legal and institutional set up so that wealthy people transfer regularly the due share of the poor and the needy. In addition to voluntary transfer of ‘what they have in excess of their need’ (afwa), the institution of Zakah and User is the classical means of compulsory regular transfer of income/asset from the well-to-do to the poor. Further the provision of Bard al hasan (i.e., benevolent loan repayable without any return) is also an institutional obligation to make available funds to the needy. Thus, the above principles and provisions construct the building blocks for the rural development schemes under the Islamic banking framework.
Rural Financing: Conceptual Basis
There is no rigid and prototype framework for rural financing in an Islamic framework. It should have programs that encourage side by side efforts of people from all economic strata helping and promoting growth, it should have components, independent or integrated as a wider part of a program, directly benefiting the poor and needy. The concept has strong relevance to the Islamic worldview of life. The transfer mechanism is built-in to the core spiritual pursuit in Islam. That is why admonition of Zakat has immediately followed that of prayer repeatedly in the Holy Quran.
The above essential characteristics of a rural development Scheme under the Islamic framework reminds us of the shortcomings of the currently practiced poverty alleviation programs in our country. First, these programs in spite of being able to reach near 25% of the poor, not the hardcore poor, with micro credits generally not exceeding Tk. 5,000/- lack achieving regular income/asset transfer. Secondly, borrowers do not have access to their savings. These two shortcomings jeopardize severely the borrower’s sustainability. Thirdly failure to reach the hardcore poor has been a serious setback to the existing rural development programs, for the following reasons: (a) fear of low recovery as they may eat up the loaned money to meet their immediate consumption needs; and (b) that they are out of reach as management cost surpasses returns to be generated from loaned money. Both the reasons affect lender’s sustainability. Fourthly, funds currently available for rural financing are mostly donor contributed which are an unsustainable source.
Design and Delivery System of Rural Financing under Islamic Banking Framework
Theoretical Construct to Rural Development/Financing
Scholars have seen the mosque a place of worship as well as a centre from where worldly life can be guided in line with the teachings of Islam. Activities like education, health, sanitation and common welfare services can be organized basing the mosque. In fact, the whole range of social, political, economic and moral issues used to be discussed through the sermons of the Imam either in mosques or in any religious gatherings.
Akkas proposed a comprehensive scheme of a mosque-based rural development program in the early Eighties with its design and delivery system.” He perceived rural development under a set of national development objectives comprising:
(a) Human resource development;
(b) Increased and sustained growth of national output within the approved boundary of Shariah;
(c) Improvement in the quality of life through creation of employment, and establishing broad-based social security system where Zakat plays a pivotal role, and
(d) Equitable distribution of income and wealth.
The rural development in an Islamic framework, as perceived by him, was not merely for material development of the villagers or for a particular section of the village people. and eventually integrated with national Islamic financial institutions.
In the Huq’smosque-based rural development scheme the following functions were assigned to a mosque:
· Carrying out spiritual obligations;
· Ensuring security of life and property of the people;
· Providing extension/supervision services through the organization of the people;
· Mobilizing and seeking opinion of the masses for government policy decisions;
· Resolving social conflicts and establishing justice; Ensuring the provision of social services such as education, health and hygiene;
· Distributing Zakat. from Baitul Mal among the poor through target oriented schemes;
· Mobilizing resources through Baitul Mal.
Islam took a similar approach and proposed an administrative structure and types of activities to be undertaken by an Islamic rural development program. While specifying program coverage he mentions that the mosque will be the centre of all socio-economic activities of a village. In the mosque premises primary education during the daytime and adult education in evenings may be organized. Local government activities with programs for agriculture including livestock, and fisheries, village court, recreational facilities and health service may come under mosque organization.
Rural Development for Poverty alleviation
It is now widely recognized that direct action is required to contain and reduce the incidence of rural poverty in Bangladesh. A review of the approaches of rural development initiatives in the past leads us to the following conclusions
- Rural development programs provide a useful conceptual framework for grassroots, broad based socio-economic rural development, and that multicultural, integrated approach is generally appropriate for rural poverty alleviation initiatives.
- Rural development projects can not be implemented from the “top down” or from “outside” alone but need to be initiated and sustained by the participating population itself with assistance of government institution, private development organizations, and eventually external donors.
- Rural development projects need to be oriented to target groups. The access of these groups to productive resources, services, and markets needs to be improved. However, target groups must be able to use their own initiate to obtain access to the means of production, information, and markets. To this end, the target group must be organized and mobilized, and planning mechanisms must be oriented toward those groups and their participation.
- More work needs to be done to clarify the factors that undermined the success of particular projects, with a view to providing practical operational models that can be used in the processes of participatory development, project design and implementation.
Role of Credit in Poverty Alleviation
The provision of credit to the poor has been a leading component of many of these programs because the lack of access to productive capital is thought to be one of the main factors preventing the poor from breaking away from the “poverty trap.” This trap, it is argued, makes it extremely difficult for the poor to overcome poverty without outside intervention. In this simplest form, this trap can be viewed in terms of the poor person’s low capacity to generate income, savings, and investment in the economic environment that offers limited employment opportunities, which thus leaves the poor in perpetual poverty.
Governments trying to provide poor farmers with access to credit often require conventional banks to earmark a certain percentage of their outstanding loans at subsidized interest rates for the poor borrowers for whom the collateral requirement is waived. Loan guarantees are normally provided for by the government to reduce the high risk borne by the banks in lending to the poor.
Reasons for Failure of Earlier Credit Programs
Much of the failure of past credit programs sponsored by governments stems from shortcomings in the design, management, and administration of the credit delivery system. One of the most serious design flaws, for example, was the lack of a targeting mechanism, such as realistic landholding and income ceilings, so that only the truly poor could qualify for credit under the program. This permitted the entry of non-poor borrowers who were attracted by the generally low interest rates charged by these programs. With their greater socio-economic and political power, the non-poor were able to get access to credit delivered in this manner much more easily than their poor counterpart, thus crowding out the latter. General credit programs for agriculture and rural development often fall under this trap. In fact, some specialized credit programs for the poor (for example, the Special Agriculture Credit Program in Bangladesh and the Differential Interest Rate Scheme of India) have also suffered because of this weakness. In the case of many credit co-operatives that failed, a host of contributing factors acting together brought about their demise. Often cited causes are:
(a) Inadequate preparation of members;
(b) Control and domination of the co-operatives by powerful local elite, who often borrowed an inordinate proportion of loan funds;
(c) weak management;
(d) top-down manner in which the co-operatives had been set up and run by the government; and
(e) Over-dependence on outside funds rather than local savings mobilization.
The lack of an appropriate credit delivery mechanism that clearly specifies the procedures and requirements for personnel and support services and provides for an effective enforcement mechanism also contributes to the effectiveness of the credit for-poor programs of conventional hanks. For example, the commercial hanks through which the Special Agricultural Credit program in Bangladesh channeled its loan took the easy way out by abdicating its responsibility to implement the program, and letting the rural elite and politicians identify and recommend borrowers.
Current Achievements and Constraints
Today the situation has greatly changed with large number of people having access to credit from semi-formal institutions. The early credit experiments of the Grameen Bank, BRAC and Proshika have translated into major credit operations. The 1980s saw the Grameen Bank and its model dominating financial flows to the poor. Although this remains the case in 1990s, there has been increased experimentation and innovation. The efforts are essentially in line with a banking system based on interest.
Successes
By late 1995, the Grameen Bank and NGOs covered around 25% of the target group households, with Tk. 16,568 million (US$ 404 million) in loan outstanding. Coverage varies substantially from area to area and between social groups. Areas with poor roads, low level of economic activity and weak NCB infrastructure have benefited little from micro-credit. NGOs and Grameen Bank have performed much better than government credit schemes and their achievements compare very favorably with all other anti-poverty strategies in the country. Results have been so impressive that Bangladesh has now been a centre of micro-credit ideas, although it is still a recipient of ideas of savings. Currently, most of the savings generated by these institutions tend to take the form of “required fees” for receiving credit, only to be recycled into Revolving Loan Funds and not generally withdrawal. Deposit banking has not been experimented with by these institutions, although other countries have made successful advances in this area.
Constraints
While these institutions have managed to extend micro credit services to the poor, all the major NGOs and Grameen Bank admit that they have serious problems in reaching the hard core poor, resulting in limited coverage. They have required a high level of subsidy to establish their programs, provided by donors. However, with high recovery rates, increased effective lending interest rates and improved management, subsidy dependence is dropping. A number of factors constrain the performance and outreach of NGOs and the Grameen Bank. These are:
· The limited accessibility of the borrowers to mobilized savings
· An over-emphasis on credit (the micro-credit mono-culture);
· The lack of investment opportunities for the poor people and, particularly, those with no assets;
· The disadvantaged position of women, who bear the additional cost securing access to markets and information;
· The inability of these institutions to operate in disadvantaged areas;
· The absence of market demand for services provided by poor borrowers;
· Natural hazards.
Success Criteria for Rural Financing Schemes
The success of a credit program designed to alleviate poverty would have to be evaluated in the. light of the program objectives. A successful program may incorporate a broad set of objectives in addition to credit, such as empowerment, “Conscientisation,” education, and skills training. The following five criteria are often used to assess the effectiveness of credit-for-poor programs:
· Extent to which the program has reached the truly poor. This can be measured both in terms of proportion of beneficiaries who are truly poor and the number of poor borrowers reached.
· Loan recovery. This is measured by the repayment rate. Sustained high loan recovery represents the simplest and clearest indicator of a program’s success as it reflects productivity or profitability of the loan as well as the borrower’s satisfaction and support of the program.
· Productivity of the loan. This measures the viability of the investment into which the loan was applied by the borrower. It is normally measured in terms of returns on investment or capital-output ratio.
- Impact on borrower’s income. This impact refers to the extent to which the borrower’s real income has increased as result of the credit provided.
- Sustainability. It refers to the capacity of the program to become institutionalized into a financially self-supporting program, able to cover all costs and to generate sufficient profits from its operation. Sustainability is affected by such variables as the interest rate charged, repayment rate, and transaction costs.
Borrower’s sustainability is also a case to note in the sustainability concept. Borrowers’ sustainability relies upon a wider range of financial services than micro credit.
Rural Development/Financing under Islamic Framework
Field Experiences
Rural development initiatives under the Islamic framework in Bangladesh are of recent origin. With some rare exceptions the initiatives in this line are phenomena of the nineties. Even those who started earlier can hardly be termed as rural development initiatives. Rabitat-al Alam Al-Islami is perhaps the only organization that started its relief activities in 1977 among the rahinga refugees and then extended its operation among the biharis in Dhaka and tribal people in Chittagong Hill Tracts and Rangpur. Origination of the organizations like Islam Procher Samity, World Assembly of Muslim Youth, Islamic Education Society can be traced back to 1970s but they did not have any credit component in their programs.
At present 62 Islamic NGOs are working in Bangladesh. They can be divided in to five categories in terms of program type as follows:
a) Organizations with credit only as a program component
b) Organizations with credit plus as program components
c) Organizations with relief and rehabilitation as a program component
d) Organizations with education, culture and research as program components
e) Organizations with preaching as a program component
Table 1 shows that 10 organizations are working with the credit only approach whereas 35 organizations are operating on credit plus principle having program components like non formal education, health and sanitation along with micro investments. Three organizations are doing relief and rehabilitation, four are engaged in education, cultural and research activities and two are involved in preaching. Organizations with either the `credit only’ or `credit plus’ approach, follow the target grouping strategy in their investment financing and apply ‘bai muazzal’ or deferred payment as a primary financing technique.
Table 2 provides information on 24 organizations in regards to their year of establishment, coverage area, number of groups and members that belong to each of them and the outstanding investment they made in 1996. A quick look at the’ year of establishment of these organizations depicts that except for the Muslim Aid Bangladesh, Bangladesh Chasi Kallyan Sangstha, Bangladesh Masjid Mission and Hilful Fuzul Samaj Kallyan Sangstha the rest of the organizations came into being after 1994. Within this short period of time the organizations have formed 10,820 groups comprising 407,064 members. They have so far invested an outstanding amount of Tk. 108,089,693.
Islamic NGOs are yet to develop a rural development plan as perceived by Islamic economists. Very few of the rural development or rural financing plans under the Islamic framework have been organized centering the mosque. For the most part, these organizations have come into being as a result of spontaneous local initiatives. To the extent information is available; none of the organizations have been able to introduce a complete and effective ‘package of borrower graduation. This is the case because organizations with the credit plus approach can not yet introduce regular asset transfers based on Zakat. Similar to the conventional NGOs, these organizations also do not allow beneficiaries/borrowers’ the access to their savings.
Rural Financing Program of Islami Bank Bangladesh Limited
Islami Bank Bangladesh Limited envisions an economic system based on equity and justice. Taking into consideration that the majority of the population below poverty line live in rural Bangladesh, the Bank has devised a “Rural Development Scheme (RDS)” with a view to create employment opportunity for them and alleviate their poverty through income generation activities.
The IBBL through its RDS project has been implementing integrated programs for the landless poor, wage laborers and marginal farmers aimed at meeting their basic needs and promoting their comprehensive development. In order to consolidate their economic base, invested money should be used in income generating activities so the poorer section of the population can become self-reliant. IZDS works for the realization of that objective.
Selection of Beneficiaries
The RDS of IBBL is target group-based. Beneficiaries of the plan are thus landless, wage laborers and marginal farmers. Selection criteria for members of the target group are as follows:
I. Farmers owning up to 0.50 acres of land including sharecroppers
II. Persons engaged in non-agricultural activities owning up to 0.50 acres land or landless
III. Permanent resident of the project area
IV. Borrower or defaulters of any other bank or organization will by no means be the beneficiaries of the plan
V. Females belonging to the families of the serial 1 and 2 above, interested in income earning projects, but who unable to do so due to dearth of money, may form a group and get the financial support
VI. Distressed people may undertake income generating schemes in nonagricultural sectors such as cow/goat/duck/chicken etc. for their self-employment
VII. Landless to be given priority in selecting target groups whose yearly family income must be below Tk. 15,000/-
Group Formation and Management of the Scheme
Activities of the RDS are organized in-groups. Each group consists of five members. People with the same mentality, age and financial status who are trustful to each other are considered for group formation. Group members should be from the same village. A person being a permanent inhabitant of the village, and owns less than 0.50 acre of land and has annual income of his/her Family not exceeding Tk. 15,000.00 is considered eligible to-be a member of a group. Not more than one member from a fancily can be member of a group and the group can not be formed with kith and kin. With these restrictions group members are free to choose their compatriot, as they like. Group members elect their group leader and deputy group leader from among themselves. There can be 2 to 6 groups in a pare, mahalla or village forming a Centre. Group leaders and deputy group leaders of all groups, in a meeting, elect a Centre Leader and a Deputy Centre Leader. In order to formalize group and centre formation and the election of the group leader, deputy group leader, centre leader and deputy centre leader, all members of the centre
Collateral-Free Investment Financing
Investment Financing: Mechanism, Modes and Avenues Investment financing starts after a three-month observation of the group members in terms of regularity in their attendance in weekly group meetings, centre meetings, and the deposit of their personal saving. Two members from each group selected by the group members are considered for investment financing. The rest of the group members become eligible for financing after those members of the group that received a loan have paid their 2 or 3 repayment installments. Investment proposals recommended by group/centre members and collected by the field supervisor are approved after careful review. Ultimately, the loan is approved by the Investment Committee, which is headed by the Bank’s Branch Manager.
The committee is comprised of the Branch manager, the Second Officer or Investment Officer, and the Field Supervisor. The Investment Committee meets once in a month. Upon approval of an investment proposal by the Investment Committee, the appropriate documentation for the types of financing going to be extended must be completed. Banking as well as Shariah rules are required to be followed appropriately.
The following Islamic modes of investment are applied for investment financing of the group members:
| Musharakah | Murabahah | ||
| Mudaraba | Hire-purchase | ||
| Bai-muazzla | Bai-Salam |
Recovery Process
The following considerations are taken into account while determining the appropriate installment payment:
· For the non-agricultural sector installments may be
Made on a weekly/monthly/quarterly basis. Weekly installments are preferred since the frequency of the short intervals often times lead to more successful recovery. Usually a payment schedule requiring 45 fixed installments of principal and profit are prescribed, allowing a two-week gestation period.
· Determination for the appropriate installment frequency
In the agricultural sector depends on the cropping cycle. In case of vegetable and green curry production, weekly installments allowing a longer gestation period is suggested.
· Generally all investments are repayable in weekly equal
Installments. In exceptional cases, with income generated beyond the date of the installment payment, a timely token, payment is advisable followed by payment of the residual amount along with the next due installment.
Avenues of Investment
Other than agricultural activities, seven categories of non-agricultural activities in the rural areas are financed under the RDS program of Islami Bank Bangladesh Limited. The categories and the types of activities financed under each category are presented in the following table.
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 I (one) year | According to need |
| Agriculture and
irrigation implements |
Tk. 25,000/- | Highest 3 (three) years | l01lo 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 |
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 |
Initially the Scheme was started as a Pilot Scheme in the rural areas of certain districts under the direct supervision of the nearby Branches of the Bank. At present, it is extended to all the 61 suitable districts out of 64 districts of the country through 118 Branches of the Bank. The metropolitan and the hill tract areas are kept outside of the Scheme.
Command Area and Baseline Survey
Each designated Branch selects villages within a radius of 15 kilometres
of the Branch premises. Following criteria is being followed in selecting a
village:
a. Easy communication;
b. Availability of agriculture and other off-farm activities;
c. Abundance of low-income people;
d. Predominance of Islamic values and ideas.
Sector, Period and Ceiling of RDS investment
| Sl. | Sector of Investment | Duration | Ceiling of Investment(Tk.) | Equivalent USD ($1.00=Tk.70.00) |
| 1 | Crop Production | 1 year | 15,000/- | 214 |
| 2 | Nursery and commercial production of Flowers & Fruits | 1 year | 30,000/- | 429 |
| 3 | Agriculture Implements | 1 to 3 years | 30,000/- | 429 |
| 4 | Live stocks | 1 to 2 years | 30,000/- | 429 |
| 5 | Poultry & Duckery | 1 year | 20,000/- | 286 |
| 6 | Fisheries | 1 to 2 years | 30,000/- | 429 |
| 7 | Rural Transport | 1 year | 10,000/- | 143 |
| 8 | Rural House Building | 1 to 5 years | 20,000/- | 286 |
| 9 | Off-firm activities | 1 year | 30,000/- | 429 |
The clients are provided investment maximum Tk. 10,000/- at the first time and the good performers are given enhancement, upon his requirement, by Tk. 2000 to Tk. 5000 in every next term up to the ceiling of a particular sector.
Target Group
a. Able bodied & industrious rural poor having age between 18 to 50 years and the permanent resident of the project area.
b. Farmers having cultivable land maximum 0.50 acres and the Sharecroppers.
c. Persons engaged in very small off-farm activities in the rural areas.
d. Destitute women and distressed people.
e. Persons having liabilities with other banks/institutions are not eligible for investment under the Scheme.
Integrated Development Approach: Modus Operandi of RDS The cardinal principle of the Scheme is the ‘Group Approach’, Allah loves those ‘who conduct their affairs by mutual consultation’ (Al-Quran 42:38). For all decision-making activities, this mutual consultation is given high priority. The salient features of the Group formation are the following:
· Small Groups to be formed consisting of 5 members preferably of similar professions/ occupations.
· The members of the Group select their Group Leader and Deputy Group Leader to co-ordinate the Group activities. After formation of the Group, the Branch Manager visits the Group and has discussion with the Group members and then he gives formal recognition of the Group through issuance of Pass Books.
· The Centre has to conduct regular weekly meeting. The weekly meetings are to be organised in a particular place, day and time as decided in the meeting of the Centre.
Rate of Return
The rate of return is determined by the authority from time to time. At present, the rate of return is 10%. Timely repayment is encouraged by offering 2.5% rebate.
Security Requirements
Generally, collateral security is not required against investment under the Scheme, as the Scheme has been drawn taking into account the social welfare objective of the Bank for upliftment of the socially down-trodden and economically backward and weaker section of the population of the society. However, each member of the Group gives personal guarantee for other members of the same Group and the members are jointly and severally liable and responsible for payment of investment.
Sanction and Disbursement
On the basis of the list submitted by the Field Officers, the Investment Committee of the Branch carefully scrutinizes the applications and sanctions the investment at the Branch level. The Investment Committee consists of Manager, Project Officer and the Field Officer.
Savings Plan
a. The members of the Group have to open Mudaraba Savings Account (RDS) in their individual names with the Branch from the very inception of the Group activity.
b. This Mudaraba Savings Account is non-cheque account, which induces the clients to make a habit of compulsory savings.
c. This savings may, however, be withdrawn by the member if he does not have any other liability with the Branch in any way.
d. The weekly compulsory savings is minimum Tk.10.00.
Centre Fund
Each member of the Group has to deposit minimum Tk.2.00 per week in the Centre Fund. This Fund is kept by opening a Mudaraba Savings Account in the name of the respective centre. This Fund is utilised 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. This fund is refundable.
Supervision, Follow-up and Monitoring
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.
Micro Enterprise Investment Scheme
The existing Field Officers and Project Officer explore the possibilities of investment in the area under the aforesaid Schemes and recommend to the Branch for sanction. If the Branch is designated to handle the proposal under the above Schemes, the Branch may sanction within the business discretionary power of the Branch Incumbent, but if it is beyond the discretionary of the Branch incumbent, the Branch may send the same to Zonal Office/ Head Office for sanction.
Performance of Rural Development Scheme
Islami Bank Bangladesh Limited launched its Rural Development Scheme (RDS) in 1995. In the mean time, 122 Branches of the Bank have been operating the Scheme in their respective areas. These Branches are working among the poor in 8,601 villages covering 906 unions under 215 thanas of 61 districts of the country. Present number of members is 467,150. Since beginning of the scheme, the members are provided investment facilities of an amount of Tk. 11,580.81 million up to 30-06-2007 against which outstanding was Tk.2,502.85 million. Rate of recovery under the Scheme is more than 99%.
Besides the regular investment program, we have provided with hand tube-well and sanitary latrine to the successful RDS members on quard from the fund given by Islami Bank Foundation. A total of 6,040 tube-wells & 3,425 sanitary latrines have so far been distributed at a cost of Tk.11.50 million & Tk.3.22 million respectively up to 30-06-2007. A brief performance of RDS up to 30 June, 2007 is shown in the following table:
A brief performance of RDS up to 30 June, 2007 is shown in the following table:
| Fig. in million Taka | ||
| Sl. No. | Areas of performance | Number & Volume/Amount |
| Area Coverage | ||
| 2 | No. of Branch handling the Scheme | 122 |
| 3 | No. of Village (no. of total village in the country is about 87,000) | 8,601 |
| 4 | No. of District (no. of total district in the country is 64) | 61 |
| 5 | No. of Centre | 16,621 |
| 6 | No. of Group | 93,430 |
| 9 | No. of Members (existing) | 467,150 |
| % of Women member in the Scheme | 92% | |
| 10 | Average no. of member per Centre (expected no. 40) | 28 |
| 12 | No. of Client (Who are availing investment) | |