Knowledge Globalization Conference, 13th International Knowledge Globalization Confernece 2018

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Capital Budgeting Techniques: An Explorative Study on Islamic Banks of Bangladesh

Alamgir Hossain

Last modified: 2018-01-07

Abstract


This study identifies capital budgeting techniques of the Islamic banks in Bangladesh. Five Islamic banks from total eight Islamic shariah based commercial banks were chosen based on convenience of data collection and for my research. This study focuses on these banks’ investment appraisal although they follow Islamic shariah where interest is strictly prohibited. Questionnaire was developed based on survey instrument. The response to these questions enabled us to discover these banks’ capital budgeting methods and investigates the determinants behind the use of the selected methods. The research also tries to identify the gap between the recommended project appraisal theory and the actual practices. It is found in the study that NPV is most commonly used methods of capital budgeting, however IRR and payback period (PBP) is also used in higher percentage. In general, Islamic banks in Bangladesh are very sophisticated in terms of capital budgeting techniques in such emerging economies than other companies in Bangladesh. There are some other factors that influence the capital budgeting techniques of these banks which have also been explored in the study.