Principles of Distribution of Profit to Mudarba Depositors

1. Mudarba Depositors of the Bank will share income derived from investment activities i.e. income form the use of funds as per the under-noted principles. Income under this category will mean and include Profit and Dividend, Capital Gains, Rent and any other income derived from investment assets.

2. Mudarba Depositors will not share any income derived from miscellaneous banking services where the use of fund is not involved, such as Commission, Exchange, Service Charges and other fees realized by the Bank in connection with sale and purchase of Demand Drafts Telegraphic Transfer and Mail Transfers etc.

3. Profit and Loss resulting from the use of Funds shall be separated in the accounts from other income and expenditure relating to other activities and services offered by the Bank.

4. Mudarba Depositors will mean net average balance of all types of Mudarba Deposit Accounts standing in the Books of the Bank as on last day of each month during the Accounting year to which the distribution of income relates after deducting Statutory Cash Reserve and Liquidity Reserve to be maintained with Bangladesh Bank as per Section 25 and Section 33 respectively of the Bank Company Act, 1991.

5. Mudarba Depositors shall get priority in the matters of investment over Bank’s Equity and other cost-free funds i.e. Bank’s Equity and other cost-free fund will be deployed only after full investment of Mudarba Deposits as determined vide Rule 4 above.

6. Mudarba Depositors will not share any income derived from investing Bank’s Equity and other cost-free fund.

7. Bank Equity shall mean and include paid-up Capital, Statutory Reserve, Investment Loss offsetting Reserve and any other Reserves or Funds created by the Bank.

8. The Gross Income derived from Investments during the Accounting year will, at first, be allocated to Mudarba Deposits and cost-free funds (including Bank’s Equity) according to their proportion in the total investment

9. The share of gross investment income of Mudarba Deposits as worked out in terms of principle laid down in Rule 8 will be distributed as under:

a)  Twenty per cent shall be retained by the Bank as MANAGEMENT FEE for managing the investments.

b)  Fifteen per cent will be transferred to INVESTMENT LOSS OFFSETITNG RESERVE. If, in any year there be Net Loss from total investment operations, that will be adjusted from the aforesaid Reserve. With a view to maintaining a general level of Return, suitable appropriation may also be made out of the Investment Loss Offsetting Reserve, if in any year the Return on Mudarba Deposits is substantially lower than average yield on such deposits during preceding year. When the Investment Loss Offsetting Reserve becomes equal to Bank’s paid up capital, annual deductions [for this purpose] shall be discontinued.

c)  The remaining sixty-five per cent will be distributed to Mudarba Depositors applying the following weightages. This will be raised to Eighty per cent as and when annual transfer of fifteen per cent to Investment Loss Offsetting Reserve is discontinued.


             Types of Deposit                       Weightage

  1. 10 years MSS (Pension) Scheme            130%
  2. 5 years MSS (Pension) Scheme              110%
  3. 8 years Mudarba Savings Bond               125%
  4. 5 years Mudarba Savings Bond               110%
  5. Mudarba Hajj Savings Deposit                110%
  6. Mudarba Term Deposits

        36 Months                                    100%

                          24                                               98%

                          12                                               96%

                          06                                               92%

                          03                                               88%

vii)      Mudarba Savings                               75%

viii)     Mudarba Short Notice                        55%

10. Differential rates of weightage have been assigned to Mudaraba Depositors on account of the following factors:-

  1. Period of Deposits: The longer the period of deposit, the greater the risk they bear with regard to fluctuation of the rates of profit and erosion of the value of deposit due to inflation. The Term Depositors have also to forgo profit in case of premature encashment.
  2. Banking Facilities: The Term Depositors do not enjoy any banking facility such as, operating accounts by cheques, transfer of account from one branch to another, collection of cheques and other instruments, executing standing instructions through their accounts etc. On the other hand, the Mudarba Savings Depositors have freedom to get the above services through their accounts. Mudarba Short Notice Depositors enjoy still greater facilities in regard to making deposits in and withdrawal from their accounts.
  3. The pattern of Rates of Return on various types of cost bearing deposits of the conventional Banks in Bangladesh Money Market have also an important bearing on allocation of weightage at different rates.
  4. In consideration of the above factors, full weightage has been assigned to the Mudaraba Term Deposits of 36 moths and relatively higher or lower weightages have been given to other deposits.

11. Mudarba Depositors share of Sixty-five per cent of gross investment income might further be raised by the Bank’s Management at its discretion to rationalize the Rates of profit to Mudarba Depositors but it would not be reduced during any accounting year without giving prior declaration.

12. The Bank will cover the entire cost of managing the investment portfolio and also make necessary provision for Bad and Doubtful investment by the amount of share of investment income pertaining to Cost-free Funds (including Bank’s Equity) vide Rule 8 and Management Fee allocated vide Rule 9(a).

13. Profit will be calculated on different types Mudarba Deposit Accounts as per their respective Rules.

14. The Rates of profit of any accounting year will be declared after certifying the Accounts of the Bank by the Auditor appointed by the Shareholders in the Annual General Meeting.


Source: Experiences in Islamic Banking: A Case Study of Islami Bank Bangladesh, Institute of Policy Studies. Republished with permission.
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