General Banking Operation and Modes of Investment of Shahjalal Islami Bank Limited
Chapter - ONE
1.1 Introduction of the report: Banking is the backbone of national economy. All sorts of economic and financial activities revolve around the bank. Financial institutions are investment intermediaries linking the savers and users of fund. These intermediaries are interposed between the ultimate borrowers and lenders permitting them efficient transfer of funds. Individuals having surplus funds can lend them for reasonable return to entrepreneurs who need funds to take the advantage of economically and financially viable investment opportunities. The existence of financial institutions facilitates such exchange of resources. As a result, both the borrowers and lenders are better off than they would have been without financial institutions and market intermediaries. Thus, these financial institutions, such as banks, have a positive role in financing and investment which is a multidimensional process involving the complexity of many interrelated and interdependent factors of diversified nature. It is difficult to assess the contribution of each factor independently. The key to successful banking lies in the ability of balance many activities simultaneously. The bank must maintain a healthy growth rate, while at the same time it must take action to minimize the risks it faces. The bank must also maintain enough cash on hand to meet obligations. It is mention worthy that Commercial Banks is the front side players of any economy. And interest rate is the price of money in conventional monetary transactions though Islamic Banks are working bypassing interest from their operations. Funded income is the main source of banks income. From the inception of Bangladesh, Banking sector has experienced different control mechanism in mobilizing Deposit and providing Credit and Advances in the economy. The definition of Islamic Bank, as approved by the General Secretariat of the OIC- “ An Islamic Bank is a Financial Institution whose statutes, rules and procedures expressly state its
commitment to the principles of Islamic Shariah and to the banning of the receipt and payment of interest on any of its operation” This paper is an attempt to evaluate the Different Modes of Investment of Shahjalal Islamic Bank Ltd., (SJIBL) in terms of productivity and effectiveness.
1.2 Background of the study: I have to prepare a report on the "General Banking Operation of Shahjalal Islami Bank Ltd." for the partial fulfillment of the internship course of BBA program. In this report I will include what credit schemes are offering by the Shahjalal Islami Bank Ltd., and also function of General Banking, which will easily understandable to the readers. Bank is the heart of the economics and banking is the blood circulation of country’s economic growth. Banks perform a significant role to serve the needs of the society in different sectors, such as: capital formation, large scale of production, industrialization, growth of trade and commerce etc. and banks are contributing a lot of aspect. Shahjalal Islami Bank Bangladesh Limited has already emerged as one of the world wide recognized banks due to its retail product management, which are part of general banking according to the principles of Islamic Shariah. Islamic banking is a new diminution of interest free banking where ‘Riba’ or interest is strictly prohibited. So I have tried to represent their performance and problems and prospects on the ground of general banking.
1.3 Objective of the Report: The main objective of the report is to fulfill the requirement of BBA program. For this I had to attach with an organization and I chose SJIBL. For this I have some practical job related experience with my academic knowledge. The objective of the study may be viewed as: •
Broad objective
•
Specific objective
1.3.1. Broad Objective: The general objective of this report is to complete the internship program and submit a report. As per requirement of BBA program of International Islamic University Chittagong, one
student needs to work in a business organization for three months to acquire practical knowledge about actual Business operation. 1.3.2. Specific Objective:
To present an overview of Shahjalal Islami Bank Limited.
A general description of the banking activities of Shahjalal Islami Bank Limited.
To submit a brief description about the General Banking Department and their activities.
To suggest remedial measurement for the improvement of the whole process of the General Banking Department.
1.4 Scope of the Report: The report will illustrate a basic reflection about the Shahjalal Islami Bank Limited present condition of the bank in private banking sector, various schemes of SJIBL, interest rate and activities, credit management system of SJIBL etc. Since I am working in the Shahjalal Islami Bank Limited, Dhanmondi Branch, I get the opportunity to gain knowledge of different part of banking system. I got the opportunity to work in all three divisions such as investment division, credit division, and foreign exchange division. And from these three different departments or divisions, I hope that I will be capable of doing these types of jobs in the future.
1.5 Methodology: •
Area of Study:
The area of the study covered the operational area, particularly investments & Credit, and Financial Aspects of Shahjalal Islamic Bank Ltd Dhanmondi Branch. •
Target Group:
Departmental heads and other concerned officials, particularly those associated with the credit division and FCAD Department of the bank, were consulted to get the required data & information. •
Sources of Data:
The sources of data are given below.
Data
Primary
Secondary
•
Consultation with bank officials.
•
Annual reports of SJIBL.
•
Study of Relevant documents.
•
Internet, Web site of SJIBL &
•
Observing the operations of
BB.
different
•
Newspapers, Journals, etc.
Departments of the Bank.
•
Credit Policy Manual.
•
Different books and periodicals
•
Discussion with the supervisor.
related to the banking sector. •
Bangladesh Bank Report.
1.6 Limitation On the way of my study in Shahjalal Islami Bank Limited, I have faced the following problems, which may be termed as the limitations of the study. The major limitations of this study are given as follows: i.
There were some restrictions to have access to the information confidential by concern authority.
ii.
I worked only on Dhanmondi branch of Shahjalal Islami Bank Limited, so I gather knowledge about activities of Head Office only by reading/hearing not in practical way.
iii.
Sufficient records, publications regarding customer service were not available as per requirement.
iv.
Three-month is not sufficient time to gain practical knowledge and prepare a report.
Chapter - TWO
2.0 Corporate Information: Name of the Company
:
Shahjalal Islami Bank Limited
Legal Form
:
A public limited company incorporated in Bangladesh on 1st April 2001 under the companies Act 1994 and listed in Dhaka Stock Exchange Limited and Chittagong Stock Exchange Limited.
Commencement of Business
:
10th May 2001.
Registered office
:
Jiban Bima Bhaban Front Block (4th Floor) 10, Dilkusha Commercial Area Dhaka-1000
Telephone No.
:
88-02-9570812, 7160591
Fax No.
:
88-02-9570809
Website
:
www.shahjalalbank.com.bd
SWIFT
:
SJBLBDDH
:
sblho@shahjalalbank.com.bd
Chairman
:
Alhaj Engr. Md. Towhidur Rahman
Managing Director
:
Muhammad Ali
Company Secretary
:
Md. Emran Hossain
Auditor
:
M/S Hoda Vasi Chowdhury & Co. Chartered Accountants Ispahani Building (3rd Floor) 14-15 Motijheel C/A, Dhaka, Tel: 9567587, 9551028
Number of Braches
:
52
Number of Employes
:
1100
Authorized Capital
:
Tk. 4000 million
Paid up Capital
:
Tk. 2,246 million
Face Value per Share
:
Tk. 100
2.1 Organization Structure:
Managing Director
Head of Investment (Credit) Risk Management (IRM)
Head HeadofofCorporate/ Corporate/ Commercial CommercialBanking Banking
Other Direct Reports (Internal Audit, etc.)
Relationship Manager/ Marketing (RM)
Investment (Credit) Administration (May report separately to MD/CEO)
Business Development
Investment (Credit) Approval (includes regional credit centers if applicable) Monitoring /Recovery (includes regional recovery centers if applicable)
2.2 Figure: Organization Structure
2.2 Objectives of SJIBL: The objective of Shahjalal Islami Bank Limited is not only to earn profit but also to keep the social commitment and to ensure its co-operation to the person of all level, to the businessmen, industrialist specially who are engaged in establishing large scale industry by consortium and the agro-based export oriented medium and small scale industries by self inspiration.
2.3 Mission: •
High quality consortium financial service with the latest technology.
•
First, accurate and satisfactory customer service.
•
Balance & sustainable growth strategy.
•
Optimum return on shareholder’s equity.
•
Introduction innovative Islami banking products.
•
Attract and retain high quality human resource.
•
Empowering real poor families and create local income opportunities.
•
Providing support for social benefit organization- by way of mobilizing fund and social services.
2.4 Vision: Shahjalal Islami Bank Limited stared its journey with the concept of 21 st century Islamic participatory three sector banking model: a) Formal Sector-Commercial banking with latest technology b) Non Formal Sector-Family empowerment Micro-credit & Micro-enterprise program c) Voluntary Sector – Social capital mobilization through CASH WAQF and other. Finally, “Reduction of Poverty Level” is there Vision, which is a prime object as stated in Memorandum of Association of the Bank with the commitment “Working Together for a Caring Society”
2.5 Core Values: For the customers To become most helpful Bank-by providing the most well-mannered and efficient service in every neighborhood of business. For the Shareholders By ensuring flaxen return on their investment through generating established profit. For the Community By presumptuous the role as a socially conscientious corporate entity in a physical manner through close obedience to national policies and objectives.
2.6 Philosophy of the SJIBL:
At present the bank has as many as 44 branches in different places of the country. The sponsors of SJIBL are leading business personalities and renowned industrialist of the country. Now this bank has paid up capital – 46.83 million and No. Of Directors – 13 (source Internet). 2.2: Figure: Branch Network
2.7 Performance of the SJIBL: SJIBL a blend of expertise and technological excellence is in place to meet varied needs of modern customers. The bank aims at mobilizing untapped money of the country and prudent deployment for productive activities in the form of lending at a competitive profit rates/investment pricing. Towards attainment of its goals and objectives, the bank pursues diversified credit policies and strategic planning in credit management. To name a few, the bank has extended micro credit, consumers durable scheme investments, house building investments etc. to cater to the needs of the individuals, which in turn has helped thousands of families. The bank also extends investment in the form of trade finance, industrial finance, and project finance, exports & import finance etc. The bank’s credit polices aimed at balanced growth and harmonious development of all the sectors of the country’s economy with top most priority to ensure quality of lending by averting growth of non-performing assets.
2.8 Products and Services:
N u m be r
Number of Branch 52 45 40 35 Series1
30 25 20 10 0 2004
2005
2006
2007
Yearr
2008
2009
The SJIBL serves its massive clientele with a variety of services apart from the conventional ones. Its frequent improvement and introduction of new products and services has given it a margin over the competitors. a) Different Types of Scheme: • Monthly Deposit Scheme (MDS) •
Mudarah Term Deposit Receipt (MTDR)
•
Monthly Income Scheme (MIS)
•
Double Profit Deposit Scheme (DPDS)
•
Millionaire Scheme.
•
Hajj Palon Scheme etc
b) Different Types of Investment (Lone) Facilities: •
Trade.
•
Working Capital Financing.
•
Industry.
•
Agriculture, Fishing and Forestry.
•
Transport and communication.
•
Water works and sanitary service.
•
Construction.
•
Storage.
•
Miscellaneous etc. Diposit Mix
of 2009
2.9 Reserves of SJIBL:
Al-Wadiah 2.87% Current is required to be transferred to statutory reserve. As such an amount of Tk.267.13 million has Deposit Saving Mudaraba
2.03%Act, 20% of operating profit before tax In accordance with the provision of Bank Companies 5.02% 5.05% been transferred to statutory reserve during the year.
2.10 Deposits:28.36%
Deposit
Mudaraba Short Total deposit of Shahjalal Islami Bank stood Tk.36, 484.00 million Deposit as on 31.12.2009 as Notice 56.67% against Tk. 22,618.00 million of 31.12.2008 registering an increase of Tk.13, 866.00 million, Mudaraba Term and 61.99% growth. Deposit is the ‘life-blood’ of a Bank. Bank has given utmost importance Deposit in mobilization of deposits introducing some popular and innovative schemes.
Mudaraba Deposit Schemes Other Deposit
2.3 Figure: Deposit of SLIBL
2.11 Profit and Operating Results: 2.11.1 Income: 1. Investment income: Total investment of the bank as at 31st December 2009 was Tk. 32919 million as against Tk. 20617 million of the preceding years registering 59% growth over last year that was 84% of the total income as also equal to 84% of 2008. 2. Non-investment income: Total non-investment income of the bank as at 31 st December 2009 was Tk. 405 million as against Tk. 263 million of preceding year registering 54% growth over last year which was 16% of the total income compared to 16% of 2008. 2.11.2 Expenditure: 1. Profit Paid on Deposits: Bank distributed profit of Tk. 1491 million the Mudaraba Depositors in the year 2009 against Tk. 944 million in the year 2008 which being 70% of the investment income
earned from deployment of Mudaraba fund and 87% of the total expenditure of 2009 against 84% of 2008. 2. Operating Expenses: Total operating expenses as on 31.12.2009 was Tk. 227 million as against Tk. 174 million of 2008, which was 13% of the total expenditure of the year 2009 against 16% of 2008. 3. Operating Profit: During the year 2009, the Bank earned an amount of Tk. 2563 million and spent an amount of Tk. 1718 million, resulting a total Operating Profit of Tk. 845 million which increased by Tk. 343 million over last year i.e. 2008. After deduction investment provision and income taxes net profit stood at Tk. 463 million as against Tk. 256 million of 2008. As appropriation of net profit, Tk. 158 million transfers to statutory reserve as per Bank Company Act 1991 and remaining Tk. 306 million transfers to retained earning to adjust previous negative balance. A summery of operating result of the bank as on December 2009 vis-Ă -vis the position of December 2008 is shown belo
Particulars Total Income Less: Total Expenditure Net Profit before Provision & Taxation Less: Provision for Investment Net Profit before Taxation Less: Provision for Taxation Net Profit Appropriation Statutory reserve Retained Earnings
(Amount in million Taka) 2009 2008 5285 3589 3475 2274 1566 1216 57.50 36.00 787.57 465.84 324.35 210.25 817.71 646.99 823.55 535.91
2.1 Table: Operating Result of SJIBL on December 2009-2008.
510.39 405.69
Operating Result 3000 2500 2000 1500 1000
Income Expenditure
500
Operating Profit/(loss)
0 -500 -1000 2005 2006
2007 Year
2008
2009
2.4 Figure: Operating Result on SJIBL
2.12 Equity of the Bank: The authorized capital of the bank is Taka 4000 million, and paid-up capital of the bank is Tk. 2246 million as on 31.12.2009. Total equity was Tk. 4069 million as on 31.12.2009. The bank has already raised its paid up capital of Tk. 1872 million through Initial Public Offering (IPO) in January-February 2009. After IPO Bank’s paid up Capital stands at Tk. 1872 million in February 2009. Comparative position of Equity for the year 2009 & 2008 is given below: SL. No a) b) c) d) e)
Particular
(Amount in million Taka) 2009 2008
Paid-up capital Statutory Reserve Retained Earnings General Provision Exchange Equalization
2245.98 823.55 535.91 463.48 0.17
1871.65 510.39 405.69 252.98 0.17
Total
4069.09
3040.88
Table: Comparative position of Equity for the year 2009 & 2008
2.13 Capital Adequacy: Total equity of the bank as on 31.12.2008 was Tk. 3040.88 million and the total equity stood to Tk. 4069.09 million on 31.12.2009, which was 13.81% of the Risk Weighted Assets as
against the requirement of 10.00%. The core capital was 12.24% of Risk Weighted Assets as on 31st December 2009 as against requirement of 5.00%.
2.14 Investments : Total investment of the bank stood at Tk.15515.79 million as on 31.12.2009 as against Tk. 10590.27 million of 31.12.2008 registering as increase of Tk. 4925.52 million, i.e. 46.51% growth. The bank is careful in deployment of the fund. Mode wish investment portfolio as on 31.12.2009 is given below: SL No
Mode of investments
Taka in Million
1
Murabaha
7353.61
Percentage of Total investment 22.34%
2
Bi-Muajjal
13224.94
40.17%
3 4
Hire-purchase & Ijara Investment against L/C
5463.44 106.13
16.60% 0.32%
5
Bill purchased/discounted
3721.76
11.31%
6
Investment against scheme deposits
557.61
1.69%
7
Quard
168.33
0.51%
8
Other
2322.95
7.06%
Total
32918.77
100.00%
2.3 Table: Mode wish investment portfolio as on December 2009
Investment Portfolio 7.06%
Murabaha Bi-muajjal
22% 51.00% 40% 17% 1.69%
11.31% 0.32%
2.5 Figure: Investment Portfolio of SJIBL
Hire-purchase & Ijara Investment against L/C Bill purchased/discounted Investment against scheme deposits
Deposit & Investment Position 40000 30000 20000
Deposit Investment
10000 0 2004
2005 2006 2007 2008 2009 Year
2.6 Figure: Deposit & investment position of SJIBL The bank entertains good investment clients having credit-worthiness and good record. The bank has got a few investment schemes to provide financial assistance to comparatively less advantaged group of people which are.
•
Household Durable Scheme.
•
Small Business Investment Program
•
Small Entrepreneur Investment Program
•
Medium Entrepreneur Investment Program
•
Housing Investment program
The following two investment schemes are going to be introduced shortly. •
Car Investment scheme.
•
Women Entrepreneur Investment Scheme.
2.15 Liquidity of SJIBL: Liquidity in the form of balance with Bangladesh Bank, Sonali Bank (as the agent of Bangladesh Bank) and in hand including foreign currency stood at Tk. 1670.12 as at 31 st December 2008 as against Tk. 1702.27 million in last year to maintain cash & statutory liquidity. The Bank is committed to maintain the cash and statutory liquidity requirement to effectively manage the asset & liability portfolios of the bank in order to maximize the profit. As per guideline of the Bangladesh Bank ALCO (assets liability committee) was formed in 2005, which is highly concerned with proper liability management under the close
supervision of senior management. The bank has a policy guideline on liquidity management as approved by its board of directors. We have able to maintain required CRR and SLR throughout the year without fail as per Bangladesh Bank’s norm.
2.16 Information Technology (IT) & Automation: All the branches of the SJIBL are fully computerized. New software is now in use to provide faster, accurate and efficient service to the clients. The bank is continuously striving for better services through extensive automation of its branches. We are soon going to launch “One Branch Banking� through on-line connectivity. The bank has set up a full-fledged IT division to keep abreast of the latest development of IT for better service in the days to come.
2.17 Corporate Governance: In recent times, corporate governance has been considered most essential aspect for efficient management of a business house. SJIBL gives much emphasis on the corporate governance in promoting a sound management. The object of the bank is to comply with all regulatory requirements, ensure equitable treatment of all stakeholders. It confirms full & fair disclosure of financial and other material information and show respect for norms of business ethics and social responsibility. The Board of director, Executive committee, Audit committee and other committee of the management perform their respective tasks with accountability and transparency.
2.18 Foreign Correspondents: Foreign correspondent relationship facilities foreign trade operation of the bank, mainly in respect of export, import and foreign remittance. The number of foreign correspondents and agents of the bank in the year 2008 stood at 244, which covers important business and trade centers of the world. The bank maintains excellent relationship with the leading international banks, for handling all foreign correspondent and maintaining all foreign business there is an International Division, which is called ID.
2.19 Investment (Credit) Rating Report:
Long Term
Short Term
AA-
ST-2
Entity Rating Date of Rating
25 April, 2009 2.4 Table: Credit Rating Report
Credit rating information and service limited (CRISL) has assigned “AA-” (pronounced as double A minus) rating in the Long Term and ST-2 rating in the Short Term to the Shahjalal Islami Bang Limited. The above rating has been done in consideration of its significant improvement in asset quality, capital adequacy, and financial performance. Financial institution rated “A” in the long term are adjudged t offer adequate safety for timely repayment of financial obligations. This level of rating indicates a corporate entity with an adequate credit profile. Risk factors are move variable and greater in periods of economic stress then those rated in the higher categories. Bank rated ST-2 in the short term is characterized by high certainty of timely payment, liquidity factor are strong and supported by good fundamental protection factors. Risk factors are very small.
BB 31 dec . 2006
BBB30 Nov. 2007
BBB+ 30 J un. 2008
A
25 A pr. 2009
Year 2.7 Figure: Credit Rating Long Term
ST-4 31 dec . 2006
ST-3 30 Nov. 2007
ST-3 30 J un. 2008
ST-2
25 apr. 2009
Year 2.8 Figure: Credit Rating Short Term
2.20 Management Shahjalal Islami Bank Limited has been practicing corporate management with Board of Directors. The Board of Directors for efficient operation of the Bank forms members of Executive Committee. Besides, a Management Committee is formed with top Executives of the Bank as members. The Board of Directors formulates the major policies and business strategies of the Bank. The Executive Committee And Management Committee executes, implement and monitor the implementation of these policies and strategies.
2.21 Shariah Council: Shariah Supervision Shariah Council of the Bank is playing a vital role in guiding and supervising the implementation and compliance of Islamic Shariah principles in all activities of the Bank since its very inception. The Council, which enjoys a high status in the structure of the Bank, consists of prominent Ulema, reputed banker, renowned lawyer and eminent economist. Members of the Shariah Council meet frequently and deliberate on different issues confronting the Bank on Shariah matters. They also conduct Shariah inspection of branches regularly so as to ensure that the Shariah principles are implemented and complied with meticulously by the branches of the Bank.
Highlights •
To conduct all activities in accordance with Islamic Shariah.
•
To make financial transaction fully free from interest.
•
To establish a welfare-oriented banking system.
•
To establish participatory relation between the Bank and client.
•
To conduct all activities of investment on Islamic principles and modes.
•
To establish justice and equity in business, trade and economics.
•
To take different efforts to develop life-style of less-income groups.
•
To play a vital role in human development and self-employment and employment generation.
•
To serve the customers in excellence with cordiality.
•
To coordinate between economic and social development.
•
To conduct social welfare activities.
•
To contribute in achieving the ultimate goal of Islamic economic system. To contribute towards balanced growth and development of the country through
•
investment operations particularly in the less developed areas. •
To contribute in achieving the ultimate goal of Islamic economic system.
FUNCTIONS The functions of Shahjalal Islami Bank Limited are as under: a) To maintain all types of deposit accounts. b) To make investment. c) To conduct foreign exchange business. d) To extend other banking services. e) To conduct social welfare activities through Shahjalal Islami Bank Foundation.
2.22 Departments of SJIBL All branches of Shahjalal Islami Bank Limited are divided into three departments: •
General Banking Department.
•
Foreign Exchange Department.
•
Investment Department.
2.23.1 General Banking Department: General banking department is one of the most important departments of Shahjalal Islami Bank Limited. Basically bank provides the main services to the customer through this department. In general this section of the Shahjalal Islami Bank Limited is divided into five sections. •
Accounts opening section
•
Cash section
•
Remittance section
•
Bills and clearing section
•
Accounts section
2.23.2 Foreign Exchange Department: Banks play a very important role in effecting foreign exchange transaction of a country. Mainly transactions with overseas countries are in respect of imports; exports and foreign remittance come under the purview of foreign exchange department. Banks are the vital sectors by which such transactions are effected/settled. Central Bank records all sorts of foreign exchange transactions. The other banks dealing with foreign exchange are to report to Bangladesh Bank regularly (viz. daily, monthly, quarterly, yearly etc.). The foreign exchange department consists of three sections. They are: •
Import section
•
Export section
•
Foreign remittance section
2.23.3 Investment Department: Banking business consists of borrowing and lending, Bank act as an intermediary between surplus and deficit economic units. Thus a banker is a dealer in money and credit. Banks accept deposit from large number of customers and then lend a major portion of the accumulated money to those who wish to borrow. In this process banks secure reasonable return to the savers, make funds available to the borrowers at a cost and earn a profit after covering the cost of funds. Banks, besides their role of intermediation between savers and borrowers and providing an effective payment mechanism, have been allowed to diversify into many new areas of better paying business activities.
2.24 Hierarchy of SJIBL
Managing Director (MD) Deputy DeputyManaging ManagingDirector Director (DMD) (DMD) Senior SeniorExecutive ExecutiveVice VicePresident President Executive Vice President Executive Vice President(EVP) (EVP) Senior SeniorVice VicePresident President(SVP) (SVP) Vice VicePresident President(VP) (VP) Senior SeniorAssistant AssistantVice VicePresident President Assistant AssistantVice VicePresident President(AVP) (AVP) First FirstAssistant AssistantVice VicePresident President Junior JuniorAssistant AssistantVice VicePresident President Senior SeniorExecutive ExecutiveOfficer Officer(SEO) (SEO) Executive ExecutiveOfficer Officer(EO) (EO) First FirstExecutive ExecutiveOfficer Officer(FEO) (FEO) Junior JuniorExecutive ExecutiveOfficer Officer(JEO) (JEO) Assistant AssistantExecutive ExecutiveOfficer Officer(AEO) (AEO) Senior SeniorOfficer Officer(SO) (SO) Officer Officer Junior JuniorOfficer Officer(JO) (JO) Trainee TraineeAssistant AssistantOfficer Officer
2.25 Social Welfare Activities: With a view to providing financial assistance to the poor and needy people of the society and also for the welfare of the community, to this perspective, bank has established “Shahjalal Islami bank Foundation� with the objective to provide health care, relief and rehabilitation, education, humanitarian of winter clothes during the winter etc. Shahjalal Islami Bank Foundation has a planning to establish the following projects and programs:
•
Shahjalal Islami Bank International School and College
•
Shahjalal Islami Bank Hospital
The foundation have also drawn up programs to look after the education, health and medical requirements of all the people of rural areas where the bank has launched Rural Investment Programs with vision 2020. The foundation already introduced a program to reward poor student who passes SSC and HSC exam. A student who is not financially sound, the foundation gives financial assistance to them. The bank has started it from 2006 under these project 111 poor and meritorious students awarded by monthly scholarship and lump sum money at yearly basis. This will motivate students to do better in future. The bank appreciates the good things in the society. Chapter-4
3.1 Islamic Banking Concepts: Islami 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 operation. For millions of Muslims, banks were institution to be avoided. Islam is a religion, which keeps Believers from the tellers’ window. Their Islamic beliefs prevent them from dealings that involve usury or interest (Riba). Yet Muslim needs banking services as much as anyone and for many purposes: to finance new business ventures, to buy a house, to facilitate capital Investment to undertake trading activities and to offer safe place for saving. Muslims are not averse to legitimate profit as Islam encourages people to use money in Islamic ally legitimate ventures not just to keep their funds idle. However in this fast moving world more than 1400 years after the Prophet (S.A.W) can Muslims find room for the principles of their religion? The answer comes with the fact that a global network of Islamic banks investment house and other financial institution have started to take shape based on the principals of Islamic finance laid down in the Quran and the Prophet’s traditions some 14 centuries ago. Islamic banking based on the Quranic prohibition of changing interest has moved from a theoretical concept to embrace more than 100 banks operating in 40 countries with multibillion-dollar deposits worldwide. Islamic banking is widely regarded as the fastest growing sector in the Middle Eastern financial services market. Exploding onto the financial scene barely thirty years ago an estimated $US100 billion worth of funds are now managed according to Shariah. The best-known feature of Islamic Banking is the prohibition on interest. The Holy Quran
forbids the charging of ‘Riba’ on money lent. It is important to understand certain principles of Islam that underpin Islamic finance. Muslim scholars accepted the word ‘Riba’ to mean any fixed or guaranteed interest payment on cash advances or on deposits. The rules regarding Islamic finance are quite simple and can be summed up as follows: a) The predetermined payment over and above the actual amount of principal is prohibited. b) The lender must share in the profits or losses arising out of the enterprise for which the money was lent. c) Making money from is not Islamic ally acceptable d) Ggharar (Uncertainty, Risk or Speculation) is also prohibited.
3.2 Objectives of Islamic Banking The objective of Islamic Banking is not only to earn profit but also to do good and welfare to the people. Islam upholds the concept that money, income and property belong to ALLAH and this wealth is to be used for the good of the society. The main objectives of Islamic Banking are as follows: 1. To conduct interest free banking. 2. To establish participatory Banking instead of Banking on debtor-creditor relationship. 3. To invest through different modes permitted under Islamic Shariah. 4. To accept deposits on profit-loss sharing basis. 5. To establish welfare oriented Banking System. 6. To extend operation to the poor, helpless and low income group for their economic enlistment. 7. To contribute in achieving the ultimate goal of Islamic economic system. 8. To facilitate the Islamic banking system in the country. 9. To create new entrepreneurs and to arrange required finance them.
3.3 Evolution of Islamic Banking Islamic Banking comes into reality through a long theoretical exercise of several renowned Islamic scholars and economists. The first attempt to establish an Islamic financial institution took place in Pakistan in 1950. In the modern world, the pioneering role in establishing the first Islamic Bank in 1963 named ‘Mit- Ghamar’ Saving Bank in Egypt at rural area of Nile Delta. As on today, there are many Islamic financial institutions operating through out the
world covering both Muslim and non-Muslim countries of various socio-economic environment. The first Islamic bank in Malaysia was established in 1983. In 1993, commercial banks, merchant banks and finance companies were allowed to offer Islamic banking products and services under the Islamic Banking Scheme (IBS). These institutions however, are required to separate the funds and activities of Islamic banking transactions from that of the conventional banking business to ensure that there would not be any co-mingling of funds. In Malaysia, the National Syariah Advisory Council additionally set up at Bank Negara Malaysia (BNM) advises BNM on the Shariah aspects of the operations of these institutions, as well as on their products and services.
3.4 Legitimate Business Contracts for Islamic Banks The modes of mobilization in Islamic banks have derived from the overall permissible contracts in Islam. In what follows we fast describe the concept of Aqd or contract form business perspective and then discuss the legitimate forms contracts that can be used in Islamic banks for both deposit collection and their profitable employment. A business contract can be defined as the exchange of a thing of value by another thing of value with mutual consent. There are four element of an Aqd or contract: 1. Contract (Aqd). 2. Subject Matter (Mabe’e). 3. Price (Thaman). 4. Prossession of delivery (Qabdh).
3.5 Common practices of Islamic banks in mobilization of funds The common practices of Islamic banks in the sources of funds may be described as follows:
3.5.1 Current Accounts All Islamic banks operate current account on behalf of their client individuals and business firms. These accounts are operated for the safe custody of deposits and for the convenience of customers. There is little different between conventional banks as far the operation of current accounts is concerned. There are two dominant views about current account. One is to treat demand deposit as amnah (trust). A trust deposit is defined by the Jordan Islamic Banks as “cash deposits received by the bank where the bank is authorized to use the deposits at its
own risk and responsibility in respect to profit or loss and which are not subject to any conditions for withdrawals or depositing�.
3.5.2 Saving Account All Islamic banks operate saving accounts. It must be pointed out that any return on capital is Islamic ally justified only if the capital is employed in such a way that it is expected to a business risk. Savings accounts at Islamic Banks Generally operate as follows: 1. Savings accounts are opened with the condition that deposits provide the bank with an authorization to invest. 2. Depositors have the right to deposit and withdraw funds. 3. The profits in savings accounts are calculated on the minimum balance maintained during the month. Depositors participate in the profits of savings accounts with effect from the beginning of the month following the month in which the deposits are made. Profits are not calculated with effect from the beginning of the month in which a withdrawal is made from the account. 4. A minimum balance has to be maintained in order to qualify for a share in profit.
3.5.3 Investment Deposit Investment deposits are Islamic banks counterparts of term deposits or time deposits in the conventional system. They are also called profit and Loss-Sharing (PLS) Accounts or Participatory Account. However they can be distinguished from traditional fixed term deposits in the following manner: 1. Fixed term deposits in the conventional system operate on the basis of interest while investment accounts in Islamic banks operate on the basis of profit sharing Instead of promising depositors a predetermined fixed rate of return on their investment the bank tells them only the ratio in which it will share the profits with them. 2. While fixed term deposit are usually distinguished from each other on the basis of their maturities investment deposits can be distinguished on the basis of maturity as well as on the basis of purposes as it is possible to give special instructions to the bank to invest a particular deposit in a specified project or trade. The main distinguishing characteristics of investment deposits can be described as follows: 1. Deposit holders do not receive any interest. Instead they participate in the share of the profits or losses.
2. Usually these accounts are opened for a specific period e.g. three months, six month, one year or more. 3. The return on investment is determined according to actual profit s from investment operations of the bank and shared in an agreed proportion by depositors according to the amount of their deposits and the period for which the bank holds them. 4. Generally speaking depositors do not have the right to withdraw from these accounts as is customary in time deposits in conventional banks.
3.6 Islamic Financial Vehicles Islamic banks around the world have devised many creative financial products based on the risk sharing and profit sharing principles of Islamic banking. For day to day banking activities a number of financial instruments have been developed that satisfy the Islamic doctrine and provide acceptable financial returns for investors.
3.6.1 Al-Mudaraba (Profit sharing) This implies a contract between two parties whereby one party the rabb al mal (beneficiary; owner or the sleeping partner), entrusts money to the other party called the mudarib (managing trustee or the labor partner). Important features of Mudaraba are as follows: 1. The division of profits between the two parties must necessarily be on a proportional basis and cannot be a lump sum or guaranteed return. 2. The investor is not liable for losses beyond the capital he has contributed. 3. The mudarib does not share in the losses except for the loss of his time and efforts.
3.6.2 Murabaha This is the sale of a commodity at a price, which includes a stated profit, which includes a stated profit known to both the vendor and the purchaser. This can be called a cost plus profit contract. The buyer in deferred payments usually pays the price back. Under Murabaha the Islamic bank purchases in its own name, goods that an importer or a buyer wants and then sells them to him at an agreed mark-up. This technique is usually used for financing trade, but because the bank takes title to the goods, and is therefore engaged in buying and selling its profit derives from a real service that entails a certain risk and is thus seen as legitimate.
3.6.3 Musharaka (Profit and loss sharing)
This is a partnership normally of limited duration formed to carry out a specific project. It is therefore similar to a western- style joint venture, and is regarded by some as the purest from of Islamic financial instrument, since it conforms to the underlying partnership principles of sharing in and benefiting from risk. In this case the bank enters into a partnership with a client in whom both share the equity capital and perhaps even the management of a project or deal and both share in the profits or losses according to their equity shareholding.
3.6.4 Ijarah (Lease financing) Another popular instrument is leasing which is designed for financing an asset or equipment. It is a manfaah (benefit) or the right to use the asset or equipment. The lessor leases out an asset or equipment to the client at an agreed rental fee for a pre-determined period pursuant to the contract.
3.6.5 Ijara Wa Iktina (Hire Purchase) Equivalent to the leasing and installment loan, hire- purchase, practices that put millions of drivers on the road each year. These techniques as applied by Islamic banks include the requirement that the leased items be used productively and permitted by Islamic law.
3.6.6 Muqarada This technique allows a bank to flat what are effectively Islamic bonds to finance a specific project. Investors who buy muqaradah bonds take a share of the profits of the project being financed, but also share the risk of unexpectedly low profits or even losses.
3.6.7 Bai-Salam A buyer pays in advance for a specified quality of a commodity, deliverable on a specific date at an agreed price. This financing technique, similar to a futures or forward- purchase contract is particularly applicable to seasonal purchase but it can also be used to buy other goods in cases where the seller needs working capital before he can deliver.
3.6.8 Istisna (Purchase order) This is a sale and purchase agreement whereby the seller undertakes to manufacture or construct according to the specification given in the agreement. It is similar to bai salam the main distinction being the nature of the asset and method of payment. Istisna generally covers
those things which are customarily made to order and advance payment of money is not necessary as required in bai salam. The method of payment in istisna is flexible.
3.6.9 Bai-Muajjal The terms ‘Bai’ and ‘Muajjal’ have been derived from Arabic words ‘Bai’ and ‘Ajl’. The word ‘Bai’ means purchase and sale. The word ‘Ajl’ means fixed time or a fixed period. ‘BaiMuajjal’ means sale for which payment is made at a future fixed date or within a fixed period. In short, it is a sale on credit. ‘Bai-Muajjal’ may be defined as a contract between a buyer and seller under which the seller sells specific goods to the buyerat an agreed fixed price payable at a certain fixed future date in lump sum or within a fixed period by fixed installment’s.
3.6.10 Hire Purchase under Shirkatul Melk Shirkat means partnership. Shirkatul Melk means share in ownership when two or more persons supply equity to purchase an asset own the same jointly and share the benefit as per agreement and bear the loss in proportion to their equity, the contract is called Shirkatul Melk contract.
3.6.11 Quard-Al-Hasan It is a virtuous loan. Through this mode, Bank provides loan to its customer for a certain period, which bears no profit/loss/compensation.
3.6.12 Direct Investment Islamic Bank without the help/assistance of any client may directly invest its fund/capital in share, securities, business and industry. Profit and loss in this business is exclusively, the internal matter of the Bank. The concepts of equity and morality are at the root of Islamic banking .In Islam moral and equitable values from an integral part of the rules of law governing contractual and financial relations to such an extent that the relationship, which exists between equity law and relation, is an organic rather than supplementary relationship. The importance of Islamic banking has increased dramatically over the past 10 years. The main differences between Western and Islamic style banking is the concentration on people and their businesses rather than on accounts it is a much more grass roots banking according to one expert.
Chapter-Four General Banking: Financial institution/ intermediary that mediates or stands between ultimate borrowers and ultimate lenders is knows as banking financial institution. Banks perform this function in two ways- taking deposits from various areas in different forms and lending that accumulated amount of money to the potential investors in other different forms. General Banking is the starting point of all the banking operating. General Banking department aids in taking deposits and simultaneously provides some ancillaries services. It provides those customers who come frequently and those customers who come one time in banking for enjoying ancillary services. In some general banking activities, there is no relation between banker and customers who will take only one service form Bank. On the other hand, there are some customers with who bank are doing its business frequently. It is the department, which provides day-to-day services to the customers. Every day it receives deposits from the customers and meets their demand for cash by honoring cheques. It opens new accounts, demit funds, issue bank drafts and pay orders etc. since bank in confined to provide the service everyday general banking is also known as retail banking.
General Banking Section of a branch is designed•
To serve the general people for saving money
•
To ensure smooth transaction for commercial people and
•
To ensure security of preaches wealth of the clients and also for all other important activities.
The general banking involves the following activities-
4.1 Account opening One cannot be a customer of the bank without opening an account. Account opening is an agreement between the customer and the bank. The form of account opening acts as a contract evidence. So account opening is one of the most important activities of a bank. The rules and regulations for opening of an account can vary according to types of accounts.
Types of Accounts One cannot imagine the banking business without deposits. So the most important activity of the commercial bank is to receive the deposits from the customers Shahjalal Islami Bank’s deposits can be divided as follows—
i. AL-Wadiah Current Deposit For private, individuals, merchants, traders, importers and exporters mill and factory overset this type of account is advantageous. The minimum deposit of Tk.5000 for opening of a current account is required with reference. The benefits of current account are as follows•
Statement of account on monthly basis/any time.
•
Free checkbook
•
Statement by fax on demand
•
Any number of transactions a day.
ii. Mudaraba Savings Deposit There is restriction on withdrawals. Frequent withdrawal is prohibited. The saving account is primarily for small-scale savers. The main objective of this A/C is promotion of saving money. Highlights of the Account
7 days notice is required for withdrawal of large amount.
Frequent withdrawal is not encouraged.
Minimum amount of Tk.2000.00 is required as initial deposit.
Normally withdrawal is not allowed more than one time in a week
iii. Mudaraba Short Notice Deposit (MSTD) The Bank offers more profits in the short-term deposit than savings account. The depositors must keep their money for at least six months to get the profit. Generally it is suitable for various big companies, organizations and govt. departments
IV) Mudaraba Term Deposit Receipt (MTDR) When an account of cash is kept in the bank for a fixed period of time these deposits cannot withdraw money from the bank before the maternity of a fixed period. When the depositors open these types of account the banker issue a receipt acknowledging the receipt of money, on deposit account. For three and six and twelve months the rate of interest is 12.5%, 12.75%, and 13% respectively.
v) Monthly income scheme: It is a monthly income scheme that really makes good sense. A sure investment for a steady return.
Highlights of the Scheme: •
Minimum deposit TK, 50,000.00 and profit will be TK, 450.00.
•
Higher monthly income for higher deposit.
•
The scheme is for a 5-year period.
Objectives of the scheme •
The depositors have to fill up forms for opening this account.
•
The receipt, which is provided by the bank to the customers, is not transferable.
•
The Bank will not provide profit to means if this deposit is withdrawer within one year of opening the account.
vi) Mudaraba multiple Deposit scheme Investment leads a country to industrialization. But saving is the main source of investment. Without saving a country cannot build up capital. For this reason saving is called the skeleton of development. This is a nine years deposit, which increases the deposit more than triple. Shahjalal Islami Bank offers mudaraba multiple savings by creating more conscious and encouraging people to save.
vii) Hajj Deposit Scheme: Hajj deposit at monthly installment from 1(one) year to 25 (twenty five) years are accepted under the above scheme to enable the account holder to perform hajj out of the accumulated saving with profit.
vii) Money Grower Money gradually grows in this account. It is a monthly savings scheme. It secures the future with ease. A small saving today will provide comfort tomorrow. There are several types of Money Grower Scheme which are given bellow:
• Education Deposit Scheme (EDS) Savings Period and Monthly Installment Rate the savings period is for 10, 15, or 20 years. Monthly installment rate is: M.Inst.
TK.100
TK.250
TK.500
TK.1000
TK.3000
TK.5000
Yrs 10 Yrs 15 Yrs 20 Yrs
22,158 47,204 92,772
55,395 1,18,011 2,31,929
1,10,790 2,36,022 4,63,858
2,21,580 4,72044 9,27,716
6,64,740 14,16,132 27,83,148
11,07,900 23,60,220 46,,38,580
Monthly Deposit Scheme (MDS) Savings Period and Monthly Installment Rate the savings period is for 5, 8, or 10 years. Monthly installment rate is: M.Inst.
TK.1000
TK.2000
TK.5000
TK.10,000 TK.25,000 TK.50,000
Yrs 5 Yrs 8 Yrs 10 Yrs
80,250 1,55,000 2,22,000
1,60,500 3,10,000 4,44,000
4,01,250 7,75,000 11,10,000
8,02,500 15,50,000 22,20,000
20,06,250 38,75,000 55,50,000
40,12,500 77,50,000 1,11,00,000
Millionaire Scheme – 12 Yrs (MS12) Savings Period and Monthly Installment Rate the savings period is for 12, 15, 20, or 25 years. Monthly installment rate is:
M.Inst. Yrs 12 Yrs 15 Yrs 20 Yrs 25 Yrs
TK.600.00
TK.1,100.00
TK.2,170.00
TK.3,330.00 10,00,000.00
10,00,000.00 10,00,000.00 10,00,000.00
• Mohor Deposit Scheme (MSD)
Savings Period and Monthly Installment Rate the savings period is for 3, 5, or 8 years. Monthly installment rate is: M.Inst.
TK.1000
TK.2000
TK.3000
TK.4,000
TK.5,000
TK.10,000
42,743 80,250 1,55,000
85,486 1,60,500 3,10,000
1,28,229 2,40,750 4,65,000
1,70,972 3,21,000 6,20,000
2,12,715 4,01,250 7,75,000
4,27,430 8,02,500 15,50,000
Yrs 3 Yrs 5 Yrs 8 Yrs
• Marriage Deposit Scheme (MSD) Savings Period and Monthly Installment Rate the savings period is for 10, 12, 15 or 20 years. Monthly installment rate is: M.Inst.
TK.250
TK.500
TK.1,000
TK.1,500
TK.2,000
Yrs 10 Yrs 12 Yrs 15 Yrs 20 Yrs
55,395 76,261 1,18,011 2,31,929
1,10,790 1,52,522 2,36,022 4,63,858
2,21,580 3,05,044 4,72,044 9,27,716
3,32,370 4,57,566 7,08,066 13,91,574
4,43,160 6,10,088 9,44,088 18,55,432
4.2 Account Closing: First a customer has to submit an application with his/her signature mentioning that he/she wants to close his/her A/C. Then the signature will be verified by the officer. Customer has to certify by different department (Advance, Foreign Exchange department) of Bank that he/she has no liabilities to the Bank. After that the Customer's A/C is debited and then Bank issues a Pay Order in the name of A/C holder.
4.3 Account Transfer: Customer has to submit an application mentioning that he/she wants to transfer his/her A/C to his desired Branch and the officer will verify the signature, Customer has to be certified by different department of Bank that he/she has no liabilities to the bank. Then total particulars of A/C holder will prepare and sent to the Customer's desired branch. Liability of Recognizer is secondary and account holder is primary.
4.4 General Practice at Regarding Accounts, in Account Opening Register: After fulfilling all the requirements for opening account necessary entries are given in the account opening register. There are several registers for several accounts as MSD, ACD, SND, MDS and MTDR etc. Date of opening name of the account holder, nature of business,
address, initial deposit, and introduction, and various information's are recorded in that register. New accounts number is given from the list of new numbers provided by the computer department.
4.5 Cheque Book: Chequebook is issued to the new customer after opening account. Two separate cheque books are given for current and saving accounts. AWCA accounts Chequebook consists 25 and 50 leafs, while MCA account Chequebook has 10 leafs. There is a chequebook issue registers in this regard; where Cheque book number, leaf number, date of issue etc. information are kept. All the necessary numbers are the sent to the computer department to give entry in the program.
5.6 Pay Order (PO): Pay Order an instrument, which is used to remit money with in a city thorough banking channel the instruments are generally safe as most of them are crossed.
4.7 Clearing: As far safety is concerned customers get crossed check for the transaction. As we know crossed check cannot be encased from the counter rather it has though been collected through banking channel i.e. clearing. A client of SJIBI received a check of another bank, which is located within the clearing range deposit; the checks in account at SJIBL New SJIBL will not the money until the check is honored.
4.8 Transfer: Transfer delivery is a Cheque collection procedure among internal branches within the Clearing House. When a Cheque is deposited to another Branch Office, then collecting branch on that date send the Cheque to their Local Office, finally send that Cheque to the respective branch and takes necessary action for honoring Cheque. If the Cheque is dishonored then authorized branch send the Cheque to the local office and Local Office send that Cheque to the collecting branch on the collecting date. Here Clearinghouse function is not required because transactions occur among the same bank between several branches.
4.9 Outward Bills for Collection (OBC):
Customers deposit cheque, draft etc for collection attaching with their deposit receipt. Instrument within the range of clearing are collected through local clearinghouse but the other which are outside the clearing range are collected through OBC mechanism. A customer of SJIBL principal branch local office Dhaka is depositing a check of Sonali Bank Cox's-Bazar. New as a collecting bank SJIBL principal branch will perform the following tasks: •
Received seal on deposit slip.
•
SJIBL local office principal branch crossing indicating them as collecting bank.
•
Endorsement gives payees A/C will be credited on realization.
•
Entry on register from where a controlling number is given.
Collecting bank can collect it either by its branches of by the drawer's bank they will forward the bill then to that articulate branch. OBC number will be given on the forwarding letter.
4.10 Inward Bills for Collection (IBC): In this case bank will work as an agent of the collection bank branch receives a forwarding letter and the bill. Next steps are: •
Entry in the IBC register, IBC number given.
•
Endorsement given- "our branch endorsement confirmed".
•
The instrument is sent to clearing for collection.
•
Miscellaneous creditor A/C.
Chapter-5 5.1 Investment mechanics of SJIBL The special feature of the Investment Policy of the Bank is to invest on the basis of profit-loss sharing system in accordance with the tenets and principles of Islamic Shariah. Emphasis is given in attaining social good and in creating employment opportunities. Investment is the action of deploying funds with the intention and expectation that they will earn a positive return for the owner. Funds may be invested in either real assets or financial assets. When resources are used for purchasing fixed and current assets in a production process or for a trading purpose, then it can be termed as real investment. The establishment of a factory or the purchase of raw materials and machinery for production purposes are
examples in point. On the other hand, the purchase of a legal right to receive income in the form of capital gains or dividends would be indicative of financial investments. Specific examples of financial investments are: deposits of money in a bank account, the purchase of Mudaraba Savings Bonds or stock in a company. Ultimately, the savings of investors in financial assets are invested by the respective company into real assets in the form of the expansion of plant and equipment. Since Islam condemns hoarding savings and a 2.5 percent annual tax (Zakat) is imposed on savings, the owner of excess savings, if he is unable to invest in real assets, has no option but to invest his savings in financial assets. When money is deposited with an Islamic Bank, the bank, in turn, makes investments in different forms approved by the Islamic Shariah with the intent to earn a profit. Not only a bank, but also an individual or organization can use Islamic modes of investment to earn profits for wealth maximization. Some popular modes of Islamic Investment are discussed below. A comparison is also attempted between the Islamic Modes of Finance and these of conventional banks.
5.2
Investment Mechanism i.
Profit & Loss Sharing Mode: Musharaka
ii.
Profit sharing Loss bearing Mode: Al-Mudaraba
iii. Bai-Mode (Buying & Selling): Bai-Murabaha, Bai-Muajjal, Bai-Salam, BaiIstisna iv. Rent Sharing Mode: Ijarah (Lease), Ijarah WA iqtina (Hire Purchase), HPSM MUDARABA •
Definition of Mudaraba
The term Mudaraba refers to a contract between two parties in which one party supplies capital to the other party for the purpose of engaging in a business activity with the understanding that any profits will be shared in a mutually agreed upon. Losses, on the other hand, are the sole responsibility of the provider of the capital. Mudaraba is also known a Qirad and Muqaradah (Shirazi 1990, p.31). Mudaraba is a contract of those who have capital with those who have expertise, where the first party provides capital and the other party provides the expertise with the purpose of
earning Halal (lawful) profit which will be shared in a mutually agreed upon proportion. This type of business venture serves the interest of the capital owner and the Mudarib (agent). The capital owner may not have the ability or the experience to run a profitable business. On the other hand, the agent (the Mudarib) may not have adequate capital to invest in a business or project. Therefore, by entering into a contract of Mudaraba each party compliments one another, allowing a business venture to be financed. The following are the steps of the Mudaraba contract (ABIIB, p.53). •
Steps of Mudaraba
The bank provides the capital as a capital owner. The Mudarib provides the effort and expertise for the investment of capital in exchange for a share in profit that is agreed upon by both parties. The Results of Mudaraba: The two parties calculate the earnings and divide the profits at the end of Mudaraba. This can be done periodically in accordance with the terms of the agreement, subject to the legal rules that apply. Payment of Mudaraba Capital: The bank recovers the Mudaraba capital it contributed before dividing the profits between the two parties because the profit is considered collateral for the capital. Distribution of wealth resulting from Mudaraba: In the event a loss occurs, the capital owner (the bank) is responsible for the entire loss. In the event of profits, they are divided between the two parties in accordance with the agreement between them, subject to the capital being recovered first. •
Rules of Mudaraba
There are some legal rules that govern the business relationship Mudaraba which are as follows. It is a condition in Mudaraba that the capital be specific in nature. In other words, the amount of capital must be known at the inception of the contract. The purpose of this rule is to ensure that there is no uncertainty about the amount of capital and, thus, no uncertainty about the division of profits. It is a condition that capital must be in the form of currency in circulation. However, merchandise can be contributed, so long as both parties to the business arrangement agree upon its value.
It is a condition that the capital cannot be subject to indebtedness. It is permissible for a Mudarib to mix his private capital with the capital of the Mudaraba, thus becoming a partner. In addition, it is also permissible for the Mudarib to dispose of capital on behalf of the Mudaraba. It is a condition that the capital of the Mudaraba is delivered to the Mudarib. Some of the jurists permit the capital owner to withhold capital and release it gradually according to the needs of the Mudarib since the Mudaraba adjudges unrestricted disposal. It is permissible for the capital owner to deliver capital to two Mudharibs in a single contract. It is permissible for the capital owner to vary the in profit sharing agreement between the two Mudharib based upon differences in the services provided It is permissible to impose restrictions on the Mudarib as long as the restriction is beneficial and does not hinder the agent’s ability to make a profit. It is permissible for the Mudarib to hire an assistant to perform difficult work that he is unable to perform on his own. The disposal of capital by the Mudarib is restricted to reasons that are conducive to the Mudaraba. The Mudarib must not lend or donate any of the Mudaraba capital. Further, he is not allowed to enter into indebtedness nor enter into another partnership agreement with the Mudaraba capital. However, these activities are permissible if the capital owner consents and authorizes the agent to use his discretion. The Mudarib is not required to contribute any capital to the Mudaraba contract except when he is found to be negligent in the way the funds are handled. It is permissible to take a surety or mortgage from the Mudarib to guarantee payment in the event of negligence violation of the contract conditions. However, it is impermissible to take a mortgage as a guarantee of capital or profit. It is a condition that profits be carefully and properly accounted for to avoid confusion by the parties to the contract. The contracting parties should stipulate how profits are to be shared on a percentage basis. It is impermissible to stipulate a fixed lump sum as profit. Profits in a Mudaraba relationship are distributed according to the agreement of the two contracting parties. It is a condition that the capital owner be solely responsible for any losses. The Mudarib shall collect his share of the profit only after obtaining the permission of the capital owner. In addition, the Mudarib cannot collect his share of profit until after capital outlay is recouped. In the event the profits are split prior to the closing of the Mudaraba, any losses incurred shall be reimbursed by the distributed profits.
The Mudarib does not receive his share of the profits until the final settlement of the Mudaraba. Once the Mudaraba has been settled, neither party is liable to the other without a new agreement being made. The Mudaraba agreement may be terminated if one of the two parties decides to rescind the agreement. This is possible because the Mudaraba is an optional non-binding agreement. Some of the jurists hold the view that Mudaraba is binding and it cannot be rescinded if the Mudarib commences work. •
Concluding Remark
It is an investment-based form of financing. The provider of capital in Mudaraba has no role in the management of the capital. However, he has to bear the risk of capital loss as well as the opportunity cost of capital for the entire period of the contract. The rate of return is quite uncertain and the cost of capital is also uncertain. Hence, there is a perfect correlation between cost of capital and rare of return on capital.
• Rent Sharing Mode: HPSM Hire Purchase under Shirkatul Melk (HPSM) is a special type of contract, which has been developed through practice. Actually, it is a synthesis of three contracts: i.
Shirkat
ii.
Ijarah and
iii.
Sale
Shirkatul Melk Shirkat means partnership. Shirkatul Melk means share in ownership. When two or more persons supply equity, purchase an asset, own the same jointly, and share the benefit as per agreement and bear the loss in proportion to their respective equity, the contract is called Shirkatul Melk contract. Ijarah The term Ijarah has been derived from the Arabic words ‘Ajr’ and ‘Ujrat’ which means consideration, return, wages or rent. This is the exchange value or consideration, return, wages, rent of service of an asset. Ijarah has been defined as a contract between two parties,
the Hiree and Hirer where the Hirer enjoys or reaps a specific service or benefit against a specified consideration or rent from the asset owned by the Hiree. It is a hire agreement under which the Hiree to a Hirer against fixed rent or rentals hires out a certain asset for a specified period. Sale This is a sale contract between a buyer and a seller under which the ownership of certain goods or asset is transferred by seller to the buyer against agreed upon price paid/to be paid by the buyer. Thus, in Hire Purchase under Shirkatul Melk mode both the Bank and the client supply equity in equal or unequal proportion for purchase of an asset like land, building, machinery, transport etc., purchase the asset with that equity money, own the same jointly, share the benefit as per agreement and bear the loss in proportion to their respective equity. The share, part or portion of the asset owned by the Bank is hired out to the client partner for a fixed rent per unit of time for a fixed period. Lastly the Bank sells and transfers the ownership of its share/part/portion to the client against payment of price fixed for that part either gradually part by part or in lump sum within the hire period or after the expiry of the hire agreement. Thus Hire Purchase under Shirkatul Melk Agreement has got three stages: i.
Purchase under joint ownership.
ii.
Hire and
ii.
Sale and/or transfer of ownership to the other partner Hirer.
HPSM through gradual transfer (sale) of legal title/ownership of the hired asset/ property. Under this type certain ‘asset/property’ is purchased with equal or unequal equity participation and owned jointly by the two parties-the Bank and the client. The Bank’s share/portion of the asset is hired out to the client partner against fixed rent/rentals per unit of time for a fixed period with a promise that the Hiree Bank will sell or transfer the ownership of its portion to the client Hirer gradually part by part in proportion to the consideration paid. So that the Hirer may acquire the full tile of the Hiree’s portion of the asset on payment of the total price at the end of the hire period.
Under this system the total price of the hired property/asset should be determined and divided over the period of hire contract (per unit of time) so that the Hirer in addition to the payment of fixed rent/rentals may pay gradually the proportionate consideration of the total price of the hired property or asset to acquire proportionate consideration of the total price of the hired property or asset to acquire proportionate ownership of the same part by part and become full owner of the hired asset at the end of the hire period. It should be noted that there should be a separate sale contract for payment/acquisition of each share (per unit of time as per hire deal)/part of asset sold to the Hirer and the amount of rent should be decreased proportionately with decrease of Hiree’s ownership and increase of Hirer’s ownership on the property/asset. DOCUMENTATIONS:
A. I Before purchasing the asset/ property by the Bank, obtain sufficient collateral securities as mentioned in the sanction advice along with the following charge documents properly execute i.e. duly field in, signed, stamped, verified and witnessed where necessary: a. HPSM sanction advice (F-192) deal wise duly accepted by the client. b. HPSM agreement (deal wise) (AF-4). c. Letter of pledge (CF-4) (Deal wise)/mortgage Deed. d. Single party D.P Note (CF-1), if there is no guarantor e. Letter of Disclaimer (CF-15), if stored in clients /parties own/hired goDown. f. Insurance policy duly recorded in Insurance Register (B-39). g. Letter of Guarantee (CF-14). h. Balance Confirmation Letter (CF-16). i. Letter of Installments (CF-7). j. Letter of Disbursement (CF-6). B. If the investment is made collaterally secured by mortgage of property, obtain the Following documents: a) In case of Equitable Mortgage, Memorandum of Deposit of Title Deed (MDTD) signed by the owner of the property. b) In case of legal Mortgage, Registered Mortgage Deed should be Obtained.
c) Personal guarantee of the owners of the property on CF-14. d) Original Title Deed with CS, RS, SA, mutation parch a, DCR of the Property and Mutation record. e) Up-to-date rent receipt. e)
Non encumbrance Certificate along with search FEE paid receipt of the Concerned Registry/Sub Registry office.
g) Valuation Certificate by a civil engineer. h) Lawyer’s Certificate about verification of the Title Deed. i) An affidavit is sworn in before a 1st class magistrate.
C. Where the investment is secured by pledge/hypothecation of stock-in-trade, Machineries etc, also obtain the following documents: a) Letter of pledge. b) Letter of hypothecation. c) Legal Mortgage of machineries.
D. In case the investment of reputed public limited company on bank’s approved list and Quoted in the stock exchange, the following documents: a) Agreement for pledge or share along with share certificate. b) Blank share transfer deed in duplicate. c) Share delivery letter. d) Letter to the concerned company to register Lien in Bank’s favor. e) Letter of authority in Bank’s favor.
E. In case of investment to partnership firms, obtain the following documents: a) Copy of partnership Deed signed by all partners. b) Copy of attested partnership Deed by 1st class Gazette officer.
F. In case investment to private or public limited country, obtain the following Documents: a) Memorandum and Articles of Association.
b) Resolution of Board of Directors of the Company. c) Personal Guarantee or the Board of Directors. d) Certificate of joint stock companies. e) Memorandum and Articles of Association with latest amendments.
G. In case of investment to trust organization, obtain the following documents: a) Copy of trust Deed. b) Resolution of Board of Trustee. c) The charge documents. d) Personal guarantee of all the members.
H. In case investment to co-operative society obtains the following documents: a) Clearance. b) Personal guarantee of the officer bearer. c) A copy of Bylaws duly certified. By the Register of the society. •
Household Durables Scheme
The objective of the scheme is to increase standard of living and quality of life of the fixed income group by extending them investment facilities to purchase household articles such as furniture like Almirah, sofa set, wardrobe; electric and electronic equipment like television, refrigerator, gas cooker; air conditioner, PC, washing machine; electric generator-IPS, UPS; motor cycle; corrugated iron sheet, cement, rod, wood etc. for construction of dwelling house; gold ornaments, tube-well, mobile telephone set etc.; medical/ engineering instruments/equipment, educational instruments/equipment, computer, books etc. for students. •
Housing Investment Scheme
The Bank has introduced this scheme recently to ease the serious housing problem in the urban areas and to make arrangement for comfortable accommodation of the fixed income group. •
Real Estate Investment Program
Professionals, Service-holders, Businessmen, Real Estate Developer and other categories of people who are not entitled for availing investment facilities under Housing Investment Scheme, shall be eligible under this program. Investment is to be extended to build new houses and for extension/ completion of the house already constructed, commercial building, shopping complex, flat/apartment etc. •
Transport Investment Scheme
To ease the existing transportation problem and ensure speedy economic growth and development of the country particularly the expansion of trade, commerce and industry, the Bank has taken up this Scheme. Under this Scheme investment is being allowed to the existing successful businessmen and potential entrepreneurs in this sector for all types of road and water transport like bus, mini-bus, truck, launch, cargo-vessel, transport for rent-a-car service; and baby- taxi, tempo, pick-up van for self-employment; and ambulance for clinic & hospital. The Bank is also extending investment facilities to multinational companies, established business houses and well to do officials and professionals for acquisition of private cars, microbus and jeeps. •
Car Investment Scheme
To meet the demand of senior officials of different organizations, established business houses and companies and persons of various professional groups who essentially need a car but cannot afford to purchase on payment at a time. Bank's investment is maximum Tk. 3.5 lac per clients against purchase cost of the vehicle. Registration and comprehensive insurance cover shall be in the name of the Bank. The clients shall have to bear all subsequent expenses relating to blue book, registration, first party insurance, tax token fitness certificate etc. •
Small Business Investment Scheme
This Scheme has been taken up for self-employment of educated unemployed youths of rural and urban areas and to provide investment to small businessmen and entrepreneurs. Investment is extended for about 200 economic activities in sectors as live-stock, fishery, agro-farming, processing and business, manufacturing, trading/shop-keeping, transportation, agricultural implements, forestry and service viz. laundry, signboard painting etc.
•
Agriculture Implements Investment Scheme
In keeping with the view of the people-oriented and welfare objectives of the Bank, this Scheme has been introduced to provide power tillers, power pumps, shallow tube wells, thresher machines etc. on easy terms to unemployed rural youths for self-employment and to the farmers to help augment production in agricultural sector
Growth of Investment Table5.1: Growth of Investment for the period 2005 to 2009 (Taka in million)
Year
Investment
2005
27,437.32
2006
37,648.56
2007
49185.92
2008
59,041.65
2009
83,899.78
k a T ilo M In
Trend of Investment 35000 30000 25000 20000 15000 10000 5000 0
Investment
2005
2006
2007
2008
2009
Year Figure 5.1: Trend of investment: 2005 to 2009
6.1 SWOT Analysis of SJIBL, Dhanmondi Branch: 6.1.1 Strength: •
Fully computerized accounts maintenance.
•
Money counting machine for making cash transaction easy and prompt.
•
In SJIBL Bank SWIFT is being used for foreign trade related operations like letter of credit, fund transfer, guarantee, etc with optimum security.
•
Well decorated and air conditioned facilities.
•
SJIBL has a well-diversified pool of human resources, which is composed of people with high academic background. Also, there is a positive demographic characteristicmost employees are comparatively young in age yet mature in experience.
•
SJIBL provide ATM debit card and nonstop banking facilities.
•
Structural set up and business location is strategic.
•
Wide product line
•
Bank is very alert to preserve the asset quality of the bank.
•
Continuous training both at home and abroad is going on the develop the skill of human resources.
•
Shahjalal Islami Bank’s assets position is quite satisfactory
6.1.2 Weakness: •
Dependent on fixed deposits.
•
Limited Market Share.
•
Absence of an ungraded website.
•
Lack of setting arrangement for the waiting customers.
•
Limited branch network.
•
Sometimes it seemed to me that charges and other fees are very high compared to other private banks. It frequently creates customer dissatisfaction.
•
Some officials dealing with retail products have not been as a professional as a private bank does require.
•
Sometimes the Customer Service Officers were so busy that it creates delay to the customer service. And at the end of the day the closing were also delayed.
•
Most of the time there were problem with the ATM machine. In ATM, It sometimes remained out of order, some time out of cash and sometimes customer face the problem of cash and credit capture.
•
Charges of statement or certificates are very high.
6.1.3 Opportunity: Here the opportunity means an area of buyer need or potential interest in which a bank can perform profitably. If the management can use the continuous support properly it can enjoy huge opportunity for improving its growth. Other opportunities are•
Expansion of new area of investment
•
Credit card business
•
Regulatory environment favoring private sector bank.
•
Technical support to small Scale industries (SSI) in order to enable them to run their enterprises successfully.
•
SME and Agro based business.
•
Besides, the Bank is to provide full range of commercial banking services.
6.1.4 Threat:
The environmental threat is a challenge posed by an unfavorable trend or development that would lead to deterioration in sales or profit. Bank’s other threats are as follows•
Number of potential competitors in home and abroad is increasing day by day.
•
Restless political condition in Bangladesh, such as Strike, Boom blast, etc. threats the prosperity of Bank.
•
Market pressure for lowing Profit rate.
•
The bank must be bound to follow the rules of central Bank.
7.1 Findings While working on Shahjalal Islami Bank Limited, Dhanmondi Branch, I have attained a newer kind of experience. After collecting and analyzing data I have some findings. These findings are completely my personal view to research work.
Shahjalal Islami Bank Limited has lack of strong supervision for which loans are defaulted.
Shahjalal Islami Bank Limited also hasn’t proper monitoring system.
In terms of repayment large loan has performed better than small sized loan.
This bank started on-line service newly. As a resulted customers are not getting the full service by the on-line service. Sometimes they have to face problem with on-line account.
Branches are very much enthusiastic to provide more service to the clients. General Banking Division is an efficient department. They are very much prompt to give decision to their valued client. Head Office Credit committee sits regularly on weekly basis. They never keep any things pending.
Lack of good cooperation is identified among the work procedures and among the employees of the bank, which results in lengthiness and ineffective service. The employees of the bank cannot provide effective and efficient services to the customers because of lack of computer facility.
The number of human resources in the Computer section is really insufficient to give services to huge number of customers.
The investment of the branch is too low in comparison to the total deposits of the branch.
The Bank has given less emphasis on long-term financing.
Shahjalal Islami Bank Limited has also shortage of efficient management information system.
7.2 Recommendation I have the practical experience in SJIBL for only three months. Shahjalal Islami Bank Ltd introduces a new dimension of business among the local bank in the financial market of Bangladesh in Retail Product Management. But in the complex business environment and diversified business world these products cannot meet the customer needs. Today, customer classes are vibrant and it is difficult to keep the customers without an appropriately designed and also is not properly market driven. Developing a market driven product management system is essential for any company if the company would like to win the competitive condition and would like to survive in futuristic competitive market setting. In this regard, following specific recommendations are forwarded for the development of product management of Shahjalal Islami Bank Ltd. •
Officials whom are involved in Customer Services should be trained properly. Because some time they cannot give proper suggestions to the customer queries. Though they try to give their best.
•
Their jobs should be mentioned more frequently
•
They should be made somewhat free from doing business
•
Link between Customer Service Officer’s and Customer Service Manager should be easier
•
Number of ATM booth can be increased
•
ATM should take good care. Because it has been seen that most of the time they remain out of order or out of cash
•
Relationship between Bank and customer should be increased
•
Charges and fees may be reduced for more customer satisfaction
•
There should be a code of conduct for the SJIBL officials, which should followed
•
The website of SJIBL should upgrade regularly
•
Last but not the list, the employees must be motivated when they do something good and creative.
7.3 Conclusion Shahjalal Islami Bank Ltd, Dhanmondi branch is one of the most potential Islami banks in the Islami banking sector. It has a large portfolio with huge assets to meet up its liabilities and the management of this bank is equipped with the expert bankers and managers in all level of management. So it is not an easy job to find out the drawbacks of this branch as a new branch. But the branch needs more employees for its substantial growth. I would rather feel like producing my personal opinion about the ongoing practices in Dhanmondi Branch. Shahjalal Islami Bank limited is a leading Private Islami bank in Bangladesh with superior customer bases that are loyal, faithful, worthy towards the bank. The service provided by the young energetic officials of the Shahjalal Islami Bank Limited is very satisfactory. As an Islami bank SJIBL has to follow the rules of Bangladesh bank despite the fact that these rules sometime restrict the foreign business to some extent. During my internship in this branch I have found its General Banking and Investment department to be very efficient; therefore this department plays a major role in the overall profitability of the branch and to the Bank as a whole.
The Bank's drive towards market leadership as well as quality in choosing business will continue in the coming years although competition is intensified with the opening of more financial institutions. The Bank is optimistic that the volume of business will increase in future through pragmatic and market friendly policies. The Bank shall continue to explore new Branches for Banking. We shall endeavor to adopt customer-oriented policies and introduce new techniques that will help to earn profit and increase greater confidence of the existing/ prospective customers. If Shahjalal Islami Bank Ltd, Dhanmondi Branch adopts professionalism within the framework of Shariah, they will be able to earn handsome “Halal Profit� and higher return to the depositors and share holders. Ultimately, public will get more confidence on this type of Banking.
Bibliography
■ References Book: 1. Sk. Nazibul Islam & Atul Chandra Pandit; Training Course on Credit Management, February 25 – March 08, 2007. 2. Dr. A. R. Khan; Bank Management. 3. P. N. Varsheny; Banking Law and Practice. 4. Training Materials on General Banking, Investment of Shahjalal Islami bank Limited.
■ Reports: 1. Prospectus of Shahjalal Islami Bank Limited. 2. Annual Report 2009 of Shahjalal Islami Bank Limited. 3. Brochures of Shahjalal Islami Bank Limited.
■ Web Sites: 1. www.shahjalalbank.com.bd
Requirements of documents For Project Investment Proposal ►Trade License (up-to-date) ►Statement of receivable and payable ►Organization Chart ►Partnership Deed (In case of partnership Firm) ►Statement of profit calculation ►CIB Inquiry Form (1, 2, and 3) duly filled in as per latest circular ►Bank’s statement for prior 12 months form previous Bank (for new customer) ►Business Plan ►Bio-data of the proprietor/partners/directors ►Rental Agreement (in case of rented premises) ►Project Plant/Site Plan (Building/structure) ►Registered Company related documents. ▪ Certified copy of Memorandum & Article of Association. ▪ Certified copy of documents from the Registrar of Joint stock companies ▪ Regarding allotments of shares, changes of directors and changing in paid-up ▪ Capital/authorized capital. ▪ Photocopy of share certificates (Attested by the Managing Director) ▪ Certificate of Incorporation. ▪ Certificate of commencement (in case of public limited company) ▪ Resolution in respect of availing investment facilities from IBBL ▪ Bio-data of the Directors/Key Executives. ▪ Audited Balance Sheet/Financial statements for the last 3 consecutive years. ▪ Original Title Deed/Bia Deeds. ▪ CS. & RS. Parcha ▪ Mutation Khatian with DCR ▪ Valuation Certificate by Valuation Firm/Civil Engineer ▪ lay out plan/Site Map. ▪ Mouza Map ►Other collateral: MTDR etc.
Highlights of Perfrmance (Amount in Taka) SL # 1 2 3 4 5 6 7
Particulars Paid up Capital Total Capital (Core + Supplementary) Capital Surplus/ (Deficit) Total Assets Total deposit Total Investment (Loans & Advance) Total Contingent Liabilities &
8 9
Commitments Investment Deposit Ratio (%) % Of Classified Investment against
10 11 12
Total Investment Profit after Tax and Provision Amount of Classified Investment Provision kept against Classified
13 14 15 16 17 18 19 20
Investment Provision Surplus / (Deficit) Cost of Fund Profit Earning Assets Non-profit Earning Assets Return on Investment in Securities(ROI) Return on Assets (ROA) Income from Investment in Securities Earning Per Share
2009 2,245,980,000 4,069,092,335 1,122,702,335 45,216,968,653 36,484,239,993 32,918,773,668 10,771,113,500
2008 1,871,650000 3,040,882,802 1,189,432,802 28,346,996,395 22,618,187,303 20,616,605,335 6,402,844,932
90.23% 0.44%
91.15% 0.62%
817,709,533 143,243,000 28,009,403
646,992,691 128,246,000 23,009,403
20,801,366 10.99% 39,889,424,692 5,327,543,961 16.84% 2.22% 192,717,942 36.41
10,723,827 10.40% 25,303,841,268 3,043,155,127 11.41% 2.60% 97,974,405 28.81
Glossary • Al-wadia: Resale of goods with a discount on the original stated cost.
• Hajj: Hajj means pilgrimage to Mecca and other holy places. Hajj, the fifth pillar of Islam, is a duty on every Muslim who is financially and physically able to carry it out, at least once in his lifetime. There is a specific period for Hajj, namely one week from the 8th day of the Islamic month of Dhul Hijjah to the 13th day of that month in the Islamic lunar calendar.
• Ijara: Leasing is also a lawful method of earning income, according to Islamic law. In this method, a real assets such a machine, a car, a ship, a house, can be leased by one person (lessor) to the other (lessee) for a specific period against a specific price. The benefit and cost of the each party are to be clearly spelled out in the contract so as any ambiguity (Gharar) may be avoided.
• Mudaraba: This is an agreement made between two parties: one which provides ‘100 percent of the capital’ for the project and another party known as a ‘Mudarib’ who using his entrepreneurial skills, manages the project. Profits arising from the project are distributed according to a predetermined ratio. Any losses accruing are borne by the provider of capital. The provider of capital has no control over the management of the project.
• Murabaha: (Cost-plus financing) This is a contract sale between the bank and its client for the sale of goods at a price, which includes a profit margin agreed by both parties. As a financing technique, it involves the purchase of goods by the bank as requested by its client. The goods are sold to the client with a mark-up. Repayment, usually in installments is specified in the contract.
• Riba: This term literally means an increase or addition. Technically it denotes any increase or advantage obtained by the lender as a condition of the loan. Any risk-free or "guaranteed" rate of return on a loan or investment is Riba. Riba, in all forms, is
prohibited in Islam. In conventional terms, Riba and "interest" are used interchangeably.
• Shariah: Islamic cannon law derived from 3 sources: the Quran; the Hadith (sayings of the Prophet Muhammad); and the Sunnah (practice and traditions of the Prophet Muhammad).
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