General Banking, Investment and Foreign Exchange Operations of IBBL
Chapter One Introduction 1.1#Back Ground of the Report After completing the required credit under the bachelor of Business Administration Curriculum, we was placed by the Business Department at IBBL as part of the Internship Program requirement. This report is prepared for the internship program consisting of a major in depth study of the total banking business of Islami Bank Bangladesh limited. Practical knowledge is fundamental for the application of theoretical intelligence. Bearing this in mind and internship program was being included in the BBA curriculum. The goal of this analysis is to expose the student in the organizational work situation and also to provide an opportunity for applying classroom learning in practice. There are some difference between theories and practice. Internship program is a system by which we can accustom ourselves with the practical situation through the application of theoretical knowledge into real life; the gap between these two can be bridged up through this internship procedure. As an indispensable part of BBA I was placed in Foreign Exchange Branch of IBBL. 1.2# Purpose of the report The report named was “General Banking, Investment and Foreign Exchange Operations of IBBL�. Offered by Islami Bank Bangladesh Limited on July 12, 2006 as a requirement for the completion of the BBA Program. The primary goal of the internship program is to provide the intern with the job experience by orienting the intern with the organization and an opportunity for the intern to relate the theoretical conceptions in the real business environment. The program covers a period of two weeks in Islami Bank Training & Research Academy (IBTRA) and eight weeks in organizational attachment. The duration of the internship attachment with the organization was from July 12, 2006 to September 24, 2006. 1.3# Origin of the report This report is based on an internship program. IBTRA (Islamic Bank Training and Research Academy) arranges this internship program to gather practical knowledge about banking activities. This is followed by practical experiences in the branches of IBBL. Each intern must carry out a specific project, which is assigned by the IBTRA. Consequently a report based on the projects is to be submitted to both the authority of IBTRA and the University. My topic for this
internship report is “General Banking, Investment and Foreign Exchange Operations of IBBL”. Hence I was placed in the Mohakhali Branch of IBBL. 1.4# Rationality of the study: Bank is the heart of the economics and banking is like 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. Islami Bank Bangladesh Limited has already emerged as one of the world wide recognized banks due to its foreign exchange and foreign trade trend 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 foreign exchange operation. 1.5# Objectives and Philosophy of the Study The first objective of writing the report is fulfilling the requirements of the BBA program. In this report, we have attempted to give on overview of Islami Bank Bangladesh Limited in general. Following are the main objectives • • • • • • • •
To familiar the history and operations of Islami Banking in Bangladesh. To show the investment mechanism and product offerings in different modes of IBBL. To show overall investment proposal, appraisal procedures, documentation system of IBBL and Conventional Banks. To show the differences with conventional banking regarding investments aspects. To identify strength and weakness of investments of IBBL. To identify the problems related to investments faced by IBBL. To recommend actions that may be necessary to redesign the investments of IBBL. To gather practical experience about operation of IBBL
1.6# Sources and Methodology of the Study: I have collected data from two sources. These two sources are as following: 1. Primary sources • Direct observation • Expert opinion & • Questioning the concerned persons 2. Secondary sources • Annual report of Islamic Bank Bangladesh Limited • Desk report of the related department i.e. IDFD • Other manual information • Different reference books of the library • Website of Islami Bank
1.7# Limitations of the Study: There are some limitations in my study. I faced some problems during the study, which are given below: •
Lack of time: The time period for this study was very short. I had only 8 weeks in my hand to complete this report, which was not enough. So, I could not go in depth analysis. Sometimes the officials were busy & were not able to give much time.
•
Insufficient data: Some essentials information could not be collected due to confidentiality of business.
•
Lack of Supervision: Few officials sometimes felt disturbed, when they were busy with their tasks. Sometimes, they didn’t want to supervise due to pressure of work load.
•
Working difference among different section: Most of the time I have to work in general banking rather than investment and foreign exchange as there is not enough transaction and deal under this two section in Mohakhali Branch.
•
Other limitations: Frequent strike and recent political instability of the country were some of the limitations.
Chapter Two Introducing Islamic Banking 2.1# What is Islami Bank? Islamic bank is a financial Institution that operates with the objective to implement and materialize the economic and financial principles of Islam in the banking area. The organization of Islamic conference (OIC) defines an Islamic bank as “a financial institution whose statutes, rules and procedures expressly state its commitment to the principals of Islamic Shariah and to the banning of the receipt and payment of interest on any of its operation.” According Islamic banking Act 1983 of Malaysia Islamic bank is a “company, which carries on Islamic banking business. Islamic banking business means banking business whose aims and operations do not involve any element which is not approved by the religion of Islam.” It appears from the above definitions that Islamic banking is system of financial intermediation that avoids receipt and payment of interest in its transactions and conducts its operations in a way that it helps achieve the objectives of an Islamic economy. Alternatively, this is a banking system whose operation is based on Islamic principles of transactions of which profit and loss sharing (PLS) is a major feature, ensuring justice and equity in the economy. That is why Islamic banks are often known as PLS-banks. 2.2# Why Islamic Bank?
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. Islamic banks operate on Islamic principals of profit and loss sharing, strictly avoid interest, which is the root of exploitation and is responsible for large-scale information and unemployment. An Islamic bank is committed to do away with disparity and establish justice in the economy, trade, commerce and industry, build socio-economic infrastructure and create employment opportunities. 2.3#Riba and its basic feature The word used by the Quran concerning ‘interest’ is Riba. The literal meanings of Riba are money increase, increase of anything or increment of anything from its original amount (Maududi 1979, p.84). However, all increases are not considered as Riba in Islam. Money may increase in business activities as well. This increase is not at all considered as Riba. The increase, instead of being prohibited (Haram), is approved (Halal) in Islam. Islam prohibits only those increases that are charged on the loan with a prefixed rate. Muslim scholars equate interest with Riba. In the Shariah, Riba technically refers to the premium that must be paid by the borrower to the lender along with the principal amount as a condition for the loan or for an extension in its maturity (Chapra 1985, p.64). In other words, Riba is the predetermined return on the use of money. In the past there has been dispute about whether Riba refers to interest or usury, but there is now consensus among Muslim scholars that the term covers all forms of interest and not only “excessive” interest (Khan 1985, p.52). Imam al Rajhi describes, “During the era of Jahiliah people invested their money and charged Riba on a monthly basis, though the invested amount remained unchanged. Money so invested was called back at the time of repayment. In case of the borrower being unable to pay back, the lender extended the period of repayment enhancing the amount to be paid on and above the principal amount.” Abu Bakr al Jasas writes, “During the period of Ignorance the lender and borrower came to an agreement that the borrower would pay back within a specified period the principal amount along with the agreed upon excess.” Ibne Hajar Askalani says, “Excess goods or money charged on and above principal amount is Riba.” Thus, any prefixed extra amount charged on a specific amount of money or goods lent out is called Riba. The most important characteristic of Riba is that it is the positive and definite result of money when changed. In other words, when money begets money, without being exchanged for goods or services, it is called Riba. Its basic characteristics of Riba as are: • •
Origin of riba is loan(Quard or Dayn) Riba is excess over and above the principal loan
• • •
Riba is charged or paid only as a condition of loan or time and no other recompense, price or exchange value is paid for the excess or Riba Riba is related with time and become double and redouble and multiple with passage time Riba is not related with the result of business.
2.4#Riba and Profit Most of the persons who try to equate Riba with profit. In effect, they are fundamentally different from each other. These misunderstanding will be removed if we look at the differences of the riba and Profit. These differences are as follows:
Riba
Profit
1. When money is “charged”, its imposed positive and define result is Riba 2. By definition, Riba is the premium paid by the borrower to the lender along with principal amount as a condition for the loan. 3. Riba is prefixed, and hence there is no uncertainty on the part of either the givers or the takers of loans. 4. Riba can not be negative, it can at best be very low or zero. 5. From Islamic Shariah point of view, it is Haram. 6.Riba is not related with the result of business
1. When money is used in trading (for e.g.) its uncertain result is profit. 2. By definition, profit is the difference between the value of production and the cost of production. 3. Profit is post-determined, and hence its amount is not known until the activity is done. 4. Profit can be positive, zero or even negative. 5. From Islamic Shariah point of view, it is Halal. 6.Profit is related with Business
2.5#The objective of Islamic Banking The primary objective of establishing Islamic banks all over the world is to promote, foster and develop the application of Islamic principles in the business sector. More specifically, the objectives of Islamic banking when viewed in the context of its role in the economy are listed as following: • • • •
To offer contemporary financial services in conformity with Islamic Shariah: To contribute towards economic development and prosperity within the principles of Islamic justice; Optimum allocation of scarce financial resources; and To help ensure equitable distribution of income.
These objectives are discussed below: Offer Financial Services: Interest-based banking, which is considered a practice of Riba in financial transactions, is unanimously identified as anti-Islamic. That means all transactions
made under conventional banking are unlawful according to Islamic Shariah. Thus, the emergence of Islamic banking is clearly intended to provide for Shariah approved financial transactions. Islamic Banking for Development: Islamic banking is claimed to be more developmentoriented than its conventional counterpart. The concept of profit sharing is a built-in development promoter since it establishes a direct relationship between the bank’s return on investment and the successful operation of the business by the entrepreneurs. Optimum Allocation of Resources: Another important objective of Islamic banking is the optimum allocation of scarce resources. The foundation of the Islamic banking system is that it promotes the investment of financial resources into those projects that are considered to be the most profitable and beneficial to the economy. Islamic Banking for Equitable Distribution of Resources: Perhaps the must important objective of Islamic banking is to ensure equitable distribution of income and resources among the participating parties: the bank, the depositors and the entrepreneurs. 2.6#Emergence of Islamic Banking For an expanding economy, a developed and efficient banking system is indispensable. Among others, it helps transfer of financial resources from surplus units to deficit units and, hence, helps accelerate the pace of development by securing uninterrupted supply of financial resources to people engaged in numerous economic activities. The tremendous development that the world economy has experienced in the last few decades was contrib uted by several factors among which, growing institutional supply of loan able funds must have played the pivotal role. The role of banking is comparable to what an artery system does in the human body. Both commercial banks and other development financial institutions provide short-, medium-, and long-term credits to businesspersons and entrepreneurs who usually take the lead in ventures of economic development. Institutional supply of credit has been made possible by a system of financial inter-mediation organized in a way where conventional banks collect small savings from the public by offering them a fixed rate of interest and advancing the loan able funds out of the deposited money to enterprising clients charging relatively higher rates of interest. The margin between these two rates is the bank's income. In addition, banks also provide many other services to the public for which it receives service charges. Despite the outstanding contribution of the conventional banking system (interest-based), several ancient and modern economists are critical about its efficiency level. Some economists consider the role of interest in the conventional banking mechanism as a major negative factor that contributes to cyclical fluctuations in the economy (Minsky 1982). Specifically, the ineffectiveness of interest rate as a stabilization tool during the period of the Great Depression is a case to note. This eventually called for Keynesian prescription of government intervention (Keynes 1964). Similar concern was expressed in a story published in Newsweek regarding Henry Kissinger, the former Secretary of State of USA. To quote, “The instability has persisted and the uncertainty has continued. After going through the throes of painfully high levels of inflation, the world economy has experienced a deep recession and unprecedented rate of
unemployment, complicated further by high level of real interest rates and unhealthy exchange rate fluctuations� (Newsweek 1983). More recent concern over the potential instability of the world monetary and financial system was expressed by Maurice Allais, a Nobel Laureate, who called for an urgent reform of the World Economic Order (Allais 1993, pp.13-16). Others vehemently oppose the argument for using rate of interest as a stabilizing tool in the economy (Saud 1980, p.88). This called for the emergence of a new system of banking capable of tackling new challenges that the present world economy, particularly the financial sector, has been facing. In response, though not exactly to that exigency but for quite a few other reasons, the second half of the twentieth century witnessed a distinctly separate line of thinking on banking. This was institutionalized at the end of third quarter and subsequently emerged as a new system of banking called Islamic Banking {also called Profit-Loss-Sharing Banking (PLS)}. The world has now been experiencing operation of as many as 250 Islamic banks and financial institutions in more than 50 countries, Muslim and non-Muslim. There are religious as well as economic reasons, which have contributed to the emergence of PLS-banking as an alternative to its conventional counterpart. It is the prohibition of 'Riba' in the Quran that, according to the proponents of the PLS-system, was the source of inspiration for establishing banks in line with Islamic Shariah (Muslehuddin 1987, pp.24-27). The basic intention behind establishing Islamic banks was the desire of Muslims to reorganize their financial activities in a way that do not contradict the principles of Shariah and enable them to conduct their financial transactions without indulging into Riba (Ahmad 1992). These writers consider rate of interest in the conventional banking mechanism synonymous to Riba, the term as used in the Quran [2:275; 30:39]. One of the reasons for this is that the outcome of the productive effort is uncertain, and so interest necessarily involves an element of Gharar, that is, uncertainty (Chapra 1985, p.64). On this religious ground, proponents of the PLSsystem urge the Islamic community to avoid all transactions with institutions that are interestbased. The economic reason derived from a verse of the Quran providing inspiration to devise an interest-free financial system has been substantiated in the way that interest, instead of increasing wealth, reduces it [30:34]. The primary reason of why the Quran has taken such a hard approach towards interest is that Islam stands for establishing a just economic system free from all kinds of exploitation (Chapra 1985). Further, Muslim economists consider depression and stagflation very often found in the capitalist world as an outcome of the financial system based on interest (Rahman 1976). Thus, Islamic banking emerged as a response to both religious and economic exigencies. While religious exigency calls for avoiding any transaction based on interest, economic exigencies, on the other hand, provide a new outlook to the role of banking in promoting investment / productive activities, influencing distribution of income and adding stability to the economy. Islamic banking is thus perceived as an improved system in all dimensions. Conventional banking is essentially based on the debtor-creditor relationship between the depositors and the bank on the one hand, and between the borrowers and the bank on the other. Interest is considered to be the price of credit, reflecting the opportunity cost of money.
Islam, on the other hand, considers a loan to be given or taken, free of charge, to meet any contingency. Thus in Islamic Banking, the creditor should not take advantage of the borrower. When money is lent out on the basis of interest, more often it happens that it leads to some kind of injustice. The first Islamic principle underlying such kinds of transactions is that “deal not unjustly, and ye shall not be dealt with unjustly� [2:279]. Hence, commercial banking in an Islamic framework is not based on the debtor-creditor relationship. The second principle regarding financial transactions in Islam is that there should not be any reward without taking a risk. This principle is applicable to both labor and capital. As no payment is allowed for labor, unless it is applied to work, there is no reward for capital unless it is exposed to business risk (Ausaf Ahmed 1995, P.17). Thus, financial intermediation in an Islamic framework has been developed on the basis of the above two principles. Consequently financial relationships in Islam have been participatory in nature. Several theorists suggest that commercial banking in an interest-free system should be organized on the principle of profit and loss sharing. The institution of interest is thus replaced by a principle of participation in profit and loss. That means a fixed rate of interest is replaced by a variable rate of return based on real economic activities (Mangla & Uppal 1990. pp.179215, 185). The distinct characteristics which provide Islamic banking with its main points of departure from the traditional interest-based commercial banking system are: (a) the Islamic banking system is essentially a profit and loss sharing system and not merely an interest (Riba) banking system; and (b) investment (loans and advances in the Conventional sense) under this system of banking must serve simultaneously both the benefit to the investor and the benefit of the local community as well. The financial relationship as pointed out above is referred to in Islamic jurisprudence as Mudaraba. 2.7#Conventional and Islami Banking Conventional banking is essentially based on the debtor creditor relationship between the depositors and the bank on the hand and between the borrowers and the bank on the other. Interest is considered to be the price of credit, reflecting the opportunity cost of money. Islam on the other hand, considers a loan to be given or taken, free or charges, to meet any contingency. Thus in Islamic banking, the creditors should not take advantage of the borrower. For the interest of the readers, the distinguishing features of the conventional banking and Islamic banking are shown in terms of a box diagram as shown below: Conventional Banks
Islamic Banks
1. The functions and operating modes of 1. The functions and operating modes of Islamic conventional banks are based on manmade banks are based on the principles of Islamic principles. Shariah. 2. The investor is assured of a predetermined 2. In contrast, it promotes risk sharing between rate of interest. provider of capital (investor) and the user of
funds (entrepreneur). 3. It aims at maximizing profit without any 3. It also aims at maximizing profit but subject to restriction. Shariah restrictions. 4. It does not deal with Zakat.
4. In the modern Islamic banking system, it has become one of the service-oriented functions of the Islamic banks to collect and distribute Zakat.
5. Leading money and getting it back with 5. Participation in partnership business is the interest is the fundamental function of the fundamental function of the Islamic banks. conventional banks. 6. Its scope of activities is narrower when 6. Its scope of activities is wider when compared compared with an Islamic bank. with a conventional bank. It is, in effect, a multipurpose institution. 7. It can charge additional money (compound 7. The Islamic banks have no provision to charge rate of interest) in case of defaulters. any extra money from the defaulters. 8. In it very often, bank’s own interest 8. It gives due importance to the public interest. becomes prominent. It makes no effort to Its ultimate aim is to ensure growth with equity. ensure growth with equity. 9. For interest-based commercial banks, 9. For the Islamic banks, it is comparatively borrowing from the money market is relatively difficult to borrow money from the money easier. market.
10. Since income from the advances is fixed, it 10. Since it shares profit and loss, the Islamic gives little importance to developing expertise banks pay greater attention to developing project in project appraisal and evaluations. appraisal and evaluations 11. The conventional banks give greater 11. The Islamic banks, on the other hand, give emphasis on credit-worthiness of the clients. greater emphasis on the viability of the projects. 12. The status of a conventional bank, in 12. The status of Islamic bank in relation to its relation to its clients, is that of creditor and clients is that of partners, investors and trader. debtors. 13. A conventional bank has to guarantee all 13. Strictly speaking, and Islamic bank cannot do its deposits. that.
2.8# Islami Bank Bangladesh Limited Based on Islamic Shariah 2.8.1..IBBL at a Glance Bangladesh is one of the largest Muslim countries in the world. The people of this country are deeply committed to Islamic way of life as enshrined in the Holy Qur'an and the Sunnah. Naturally, it remains a deep cry in their hearts to fashion and design their economic lives in accordance with the precepts of Islam. The establishment of Islami Bank Bangladesh Limited on March 13, 1983, is the true reflection of this inner urge of its people, which started functioning with effect from March 30, 1983. This Bank is the first of its kind in Southeast Asia. It is committed to conduct all banking and investment activities on the basis of interest-free profitloss sharing system. In doing so, it has unveiled a new horizon and ushered in a new silver lining of hope towards materializing a long cherished dream of the people of Bangladesh for doing their banking transactions in line with what is prescribed by Islam. With the active co-operation and participation of Islamic Development Bank (IDB) and some other Islamic banks, financial institutions, government bodies and eminent personalities of the Middle East and the Gulf countries, Islami Bank Bangladesh Limited has by now earned the unique position of a leading private commercial bank in Bangladesh. 2.8.2: Aims and objectives • • • • • • • • •
To conduct interest-free banking To establish participatory banking instead of banking on debtor-creditor relationship To invest on profit and risk sharing basis To accept deposits on Mudaraba & Al-Wadeah basis To establish a welfare-oriented banking system To extend co-operation to the poor, the helpless and the low-income group for their economic upliftment To play a vital role in human development and employment generation 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
2.8.4: Mission &Vision of Islamic Bank Bangladesh Limited (IBBL) To establish Islamic banking through the introduction of welfare oriented banking and also ensure equity and justice in the field of all economic activities, achieve balanced growth and equitable development through diversified investment operations particularly in the priority sectors and less development areas of the country. To encourage social-economic upliftment and financial services to the low -income community particularly in the rural areas. Islamic bank vision to always strive to achieve superior financial performance is considered a leading Islamic bank by reputation and performance. •
To establish and maintain the modern banking technology, to ensure the soundness and development of the financial system based on Islamic principles and
• •
to become the strong and efficient organization with highly motivated professionals, working for the benefit of people, based upon accountability, transparency and integrity in order to ensure the stability of finical systems. Try to encourage savings in the form of direct investment. Try to encourage investment particularly in project, which are more likely to lead to higher employment.
2.8.5: Hierarchy EXECUTIVE PRESIDENT DEPUTY EXECUTIVE PRESIDENT EXECUTIVE PRESIDENT SENIOR VICE PRESIDENT VICE PRESIDENT ASSISTANT VICE PRESIDENT SENIOR PRINCIPAL OFFICER PRINCIPAL OFFICER SENIOR OFFICER OFFICER PROBATIONARY OFFICER 2.8.6: 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 serve the customers in excellence with cordiality To coordinate between economic & social development To conduct social welfare activities To contribute in achieving the ultimate goal of Islamic economic system
2.8.7: Corporate information As on 31st December 2006 Date
of
Incorporation
: 13th
Inauguration of 1st Branch Formal
March
1983
: 30th March 1983 (Local office, Dhaka)
Inauguration
: 12th
August
1983
Share of Capital • •
Local Shareholders Foreign Shareholders
: :
42.63% 57.37%
Authorized Capital
Tk.5, 000.00 million
Paid-up Capital
Tk.3, 456.00 million
Deposit
Tk.142154 million (As on 30-Apr-2007)
Investment
Tk.139186.91 million (As on 30-Apr-2007)
Foreign Exchange Business: Tk.201, 822 million (As on 31-Dec-2006) Number of Branches
186 (As on 20 September, 2007)
Number of Shareholders
20,960
Manpower
7459
(As on 31- Dec-2006) (As on 30-Dec-2006)
2.8.8.Banking Function 1. 2. 3. 4.
To mobilize deposits To disburse investments To handle foreign exchange and foreign business Remittance: To remit money to home and abroad through T.T, D.D, Pay-Order, Travelers Cheque, etc.
5. Other services: E.g. Locker service, to receive different types of bills of clients, to issue Guarantees and counseling etc. Besides, Islami Bank Bangladesh Limited (IBBL) conducts social welfare activities through Islami Bank Foundation. 2.8.9.. Activities of the Bank The activities of the Banks include the following areas of the economy other than normal commercial banking operations. Industrial Financing: Like BSB & BSRS Development Financial Institutions. House Building Financing: Like HBFC Housing Finance & Company and Delta Brac Housing Company. Rural Development Financing: Like Grameen Bank, BRAC, ASA, etc. Humanitarian Assistance: Trough its Foundation for the down trodden people of the society. 2.8.10: Role and Contribution of IBBL to Bangladesh Economy 1. Pioneer in Islamic Banking running its entire operation based on Islamic Shariah. 2. Shariah Council comprising of leading Ulama, renowned economists, lawyers and bankers of the country for constant supervision and guidance of the Banking operation. 3. Never participate in the interest based money market operations. 4. Never borrowed from any source either inside or outside the country. 5. A transparent and corruption free operation for the last 23 years in a row. 6. Regular and timely holding of AGM declaring good dividend since 1989 without break till 2002, except in the year 1992. 7. Largest contributor of Tax to the Government exchequer from the private sector banks receiving CIP status from the Government almost every year. 8. Received the best bank in Bangladesh Awards from Global Finance, UK in 1999, 2000 & 2004. 9. It is connected to 830 offices of 230 foreign banks in 74 countries. IBBL received A+ rating in CRISL ( Credit Rating Information & Services 2.8.11: World Ranking of IBBL Amongst Top 3000 International Banks Serial No 1 2 3 4 5
Year 1994 1995 1996 1997 1998
Rank 2447 2314 2304 2262 2119
6 1999 7 2000 8 2001 9 2002 10 2003 11 2004 12 2005 13 2006 14 2007 Source: The Bankers Almanac: World Ranking Read Business Information, U.K
2100 1999 1902 1771 1755 1581 1658 1620 1490
2.8.12: Ranking of IBBL amongst Top 500 Banks of Asia Serial No 1 2 3 4
Year 1998 1999 2000 2001
Rank 465 443 437 414
Source: The Asia Financial 500; Asia Week Ltd., Hong Kong 2.8.13: Achievements 2.8.13: A: National and international ratings of IBBL IBBL's past performances have been evaluated by Bangladesh Bank, several credit rating agencies home & abroad and by the local press. 2.8.13:B: International Press “In the midst of a difficult Banking system known to be plagued by high non-performing loans (NPLs), one could easily conclude that it would be difficult to find a bank that is different from norm. However, IBBL provides a refreshing change and is, thus, a pleasant surprise. Although it does not command the market share as the 4 public sector banks, IBBL, which claims to have little interference in lending from the government, has nonetheless, managed to find a niche market of its own-says the ‘BANK ATCH’ a New York based international Credit Rating Agency in its January 30, 1998 issue. “As a market leader offering banking services based on the Islamic rule of Shariah, IBBL's profitability trend has been quite impressive. The Bank's ability to keep its return on asset (ROA) well above the industry's average reflected its resilience to possible shocks in the banking system. Concerns over massive NPLs and under provisioning are common amongst local banks. But this seems well resolved in IBBL. IBBL's good performance and solid capital base have indeed provided refreshing change found within a banking system saddled and held back by huge NPLs” the above agency continued to comment in the same issue. 2.8.13: C: National Press
“It is one of a few local banks according to CAMEL (Capital, Assets, Management, and Earnings & Liquidity) rating made by the Bangladesh Bank. It holds the highest amount of liquidity among all banks and its ability to keep return on assets at 1.07 percent is well above the banking sector's average of 0.33 percent”- The Financial Express, Dhaka commented in its issue of May 28, 1998. “The Holiday” in its 29th August, 1997 issue carried out a report under the heading “Setting a precedence of sound banking” and commented “While the country's banking system is burdened with bad debt portfolios and also suffers from a liquidity shortage, the Islami Bank Bangladesh Ltd. (IBBL) has created a unique precedence by improving its reserve and deposit positions substantially, making handsome profits, and offering attractive dividends to its share holders and depositors.” 2.8.13:D: IBBL's World rating As per Bankers' Almanac (January 2001 edition) published by the Reed Business Information, Windsor Court, England, IBBL's world Rank is 1771 among 3000 banks selected by them. This position was 1902 among 4500 selected banks as on January 1999 edition. IBBL's country Rank is 5 among 39 banks as per ratings made by the above Almanac on the basis of IBBL's Financial Statements of the year 2001. 2.8.13:E: Award and Prizes: International & National Perspective IBBL was awarded for several times by international & national organisations. The Global Finance, a reputed London based quarterly magazine, awarded IBBL as the best bank of the country for the year 1999 and 2000. IBBL has got the 2nd prize of National Export Fare for its pavilion of Service Organisation in 1985. 2.8.14: Membership of Different Organization / Chamber Local: • • • • • •
Bangladesh Institution of Bank Management (BIBM) The Institution of Bankers Bangladesh (IBB) Bangladesh Association of Banks (BAB) Bangladesh Foreign Exchange Dealers' Association (BAFEDA) Central Shariah Board for Islamic Banks of Bangladesh International Chamber of Commerce- Bangladesh
Foreign: • International Association of Islamic Banks (IAIB), Jeddah, K.S.A. • Accounting and Auditing Organizations for Islamic Financial Institutions (AAOIFI), Manama, Bahrain. • General Council of Islamic Banks & Financial Institutions (GCIBFI), Manama, Bahrain (IBBL is a member of its Executive Council) • Society for Worldwide Inter-bank Financial Telecommunication (SWIFT) Chapter
Three Performance Evaluation 3.1# CAPITAL STRUCTURE (CAPITAL COMPOSITION & CHANGES DURING THE LAST 20 YEARS IN BRIEF): It is well known to all that Islami Bank is one of the fastest growing banks in Bangladesh. The management introduces this new Islami Shariah based banking over the conventional banking. A scenario is presented here on the view of Capital structure during the last 20 years: 1983 (Million) 500.00
Authorized Capital Paid Up 67.50 Capital Reserves Nil Total Equity
67.50
1985 (Million) 500.00
1990 (Million) 500.00
1995 (Million) 500.00
2000 (Million) 1,000.00
2005 (Million) 5,000.00
2006 (Million) 5000.00
67.50
80.00
160.00
320.00
2764.80
3456.00
13.20
200.00
653.10
1,759.65
5450.94
6979.96
92.70
280.00
813.10
2,671.06
8331.14
10435.96
Today, IBBL is the largest Private sector Joint-Venture Bank amongst the contemporary private Banks in Bangladesh with the following parameters of performances as on 30.09.2006. 3.2#Present Status: 31.12.04
31.12.05
Growth 31.12.06 Growth
•
1.
Branches -
•
2.
Deposit-
88457
107358
21%
132824
23%
•
3.
Investment -
83899
102148
22%
123950
21%
•
4.
Gross Profit -
•
5.
Import -
•
6.
Export -
29192
36948
56%
51133
41%
•
7. Remittance-
23669
26786
31%
53819
46%
•
8. Total F.Ex.Busn. 112624
147642
31%
201822
37%
151
2391 59804
169
2917 74525
12%
176
4%
22%
3534
21%
25%
96870
30%
3.3# Highlights of Six years Performance of IBBL: (Amount in million Taka) Particulars 2000
2001
2002
2003
2004
Authorized Capital
1,000.00
1000.00
3000.00
3000.00
2005 5000.00
2006 5000.00
640.00
640.00
1920.00
2304.00
2764.80
3456.00
1,998.04
2852.07
3280.37
5450.94
6551.23
2,993.24
3540.51
5266.47
8331.14
10435.9
41,640.94
56,246.37
70,552.65
6691.12 88,452.18
108261
132419.
37,648.75
49,185.92
62,755.90
83,893.63
102145
117132.
25907.00
33,788.00
46,237.00
59,804.00
74,525.00
96870.0
16082.00
16,673.00
21,738.00
29,192.00
36,169.00
51133.0
9879.00
14,670.00
16,668.00
23,669.00
36,948.00
53819.0
51868.00
65,131.00
84,643.00
112,665.00
147,642.00
201822.
4,259.55
5,234.07
6,841.29
8262.73
10586.78
14038.3
3,683.43
4,240.02
6039.28
6419.74
8424.36
11129.6
2162.42
2908.67
802.01
1842.99 973.09
1490.12
426.61
829.35
25%
20% (Stock)
20% (Stock)
25%(Stock)
15%cash 10%stoc
1,000.00 Paid-up Capital 320.00 Reserves Fund 1,759.65 Total Equity 2,671.06 Total Deposits (Including bills 32,112.81 payable) Gross Total Investments (Including Inv in 29,563.20 Share) Gross
Import Business
4329.92
25,327.00 Export Business 16,889.00 Remittance 7,644.00 Total Foreign Exchange Business 49,860.00 Total Income 3,207.81 Total Expenditure 2,877.57 Net Profit before Tax 330.24 Payment to Government 104.03 (Income Tax)
994.05 576.12 397.62 181.48
Dividend 25%
25%
Total Assets (including Contra) 49,250.36
58,644.46
77,463.12
98,046.85
125,776.94
150959.66
188115.
Total Assets 39,362.27 (Excluding Contra) Fixed Assets 1,121.15
49,551.87
65,080.12
81,704.74
102149.28
122880.35
150252.
1,276.89
1725.53
2036.65
2552.70
3067.90
3724.69
No. of deposit account holder No. of investment account holder Cumulative amount of disbursement from RDS Outstanding Investment of RDS RDS no. of A / C holder RDS no. of village Number of Foreign Correspondents Number of Shareholders Number of Employees Number of Branches Book value per Share ( Taka) Earning per Share (Taka) Market Value per Share (Taka) (Highest) Capital Adequacy Ratio
1,355,053
16,51122
19,94266
22,91269
2705180
139,738
176,138
1,96295
22,3954
26,4863
297943
714.93
1323.87
2,029.67
2923.60
4216.77
6033.36
272.6
371.1
432.1
570.9
789.97
-
74,315
100,470
107,225
130,465
163,465
164116
1,365
2,214 815
2875 830
3700 840
4230 850
4560 860
10,747
14,196
15,892
17,201
5,306
6202
775 7,549
870 20,960
9,917 3,297
4,249
121
128
4,673 141
151
169
7459 176
116 6278
3519
4205
2181
2257
3013
3019
353
617
932
195.92
518.59
487.57
485.94
3,305
3,205
3656
2595
4833
5580
2,685
4749.00 10.59%
9.24%
8.64%
9.43%
9.21%
(Note: One Million = Ten Lac) 3.4# Graphical Presentation of Composition of Equity of IBBL:
Paid up capital Statutory Reserve
0.38, 0% 0.46, 0%
Provision of Unclassified investment
5.58, 6% 7.74, 8% 8.3, 8%
0.02, 0% 33.18, 34%
Retaind Earnings Investment loss offsetting Reserve
11.34, 11%
12.73, 13%
Assets Revaluation Reserve
General Reserve 20.27, 20% Exchange Equalization Dividend Equalization Share preminum
9.44%
9.43%
3.5# DEPOSIT Islami Bank is one of the fastest growing banks in Bangladesh. In every aspect Islami banking concept and as 1st introducer of this banking system in Bangladesh Islami bank plays a superior position in the whole banking sector in Bangladesh. In that stream of flows total deposits achieved by IBBL at Tk. 107,779 Million as on 31.12.05 as against Tk. 87,841 Million as on 31.12.04 of the preceding year registering an increase of Tk. 19,938 Million i.e. (35 percent as compared to the growth rate of 12 percent of the Banking Sector during 2005.) Total number of depositors of IBBL increased to 2,604,266 as on 31 st December 2005 from 2,111,122 of the preceding year, registering an increase of 24 percent. Trend of Deposit: 2001 to 2005 120,000
107,779
Million Taka
100,000
87,841
80,000
69,655
60,000
Deposits
55,462 41,547
40,000 20,000 0 1
2
3
4
5
Year
Generally Islami bank has its own product line such as Mudaraba Savings Account (MSA), Mudaraba Special Scheme (MSS), Mudaraba term Deposit (MTDR), Mudaraba Short Notice A/C (MSNA), Mudaraba monthly profit distribution Scheme (MMPDS) etc. This entire product makes a tremendous response over the client. More over the client are become very much interested to accept the new methodology introduce by IBBL instead of conventional Banking methodology where there is no use of terms call INTEREST. Then recently IBBL introduce a New Product Call Mudaraba Savings Bond (MSB) already augment resources matching with its asset structure; it has received tremendous response. In 1998, 10 year and 5 year’s term Mudaraba Special Savings (Pension) Scheme has been introduced to meet the expectation of the existing/potential depositors of the Bank that has also received tremendous response. Particulars Mudaraba Savings Mudaraba Term Deposit Mudaraba SND Mudaraba Special Savings Currency & Contingency
Percentage 40.26% 20.47% 14.15% 11.52% 8.07%
Bills Payable Mudaraba Saving Bond Mudaraba Monthly Profit Deposit Scheme Mudaraba Muhor Savings Mudaraba Foreign Currency Deposits Mudaraba Muhor Savings Mudaraba Wakf (Cash Deposit)
3.39% 1.01% 0.35% 0.64% 0.08% 0.05% 0.01%
Mudaraba Savings
Deposit Mix as an 31.12.05
Mudaraba Term 45 40
40.26
Mudaraba SND Mudaraba Special Savings Currency & Contingency
Percentage (%)
35 30 25 20 15 10 5 0
Bills Payable
20.27 14.15 11.52 8.07
Mudaraba Savings Bond
3.39 1.010.350.640.08 0.050.01 1 Products
3.6# INVESTMENTS
Mudaraba Monthly Profit Deposit Scheme Mudaraba Muhor Savings Mudaraba Foreign Cuyrrency Deposits Mudaraba Hajj Mudaraba Wakf (Cash Deposit)
Investment of Islami Bank increased to Tk 93,644 million as on 31.12.2005 from Tk 75,859 million as on 31.12.2004 showing an increase of Tk. 17,785 million, i.e. 18.99% growth as against 11.75% growth of investment of the banking sector. This increased investment growth of the Bank in 2005 may be attributed to the thrust given to promote investment in order to deploy the surplus liquidity. Pursuant to the investment policy adopted by the bank, currently a 5 year Perspective Investment Plan has be drawn up for the year 2005 to 2009 and put into implementation. The plan has been formulated keeping in view the national economic priorities and aiming at diversification of the investment portfolios by size, sector, geographical area, economic purpose & securities to bring in phases all sectors of the economy & all types of economic activities and different economic strata of the society within the fold of Bank’s investment operation.
Million Taka
Trend of Investment: 2001 to 2005 100,000
93,644
80,000
75,859
60,000
59,007
Investment
46,281
40,000
35,238
20,000 0 1
2
3
4
5
Yea r
3.7# Foreign Exchange Business: IBBL Gulshan-2 Branch is an Authorized Dealer (AD) Br Approved by the Bangladesh Bank. So the branch can operate its foreign exchange business in full swing. Total foreign exchange business handled by Gulshan branch during the year 2005 was Taka 147,642.00 million. 3.7:1: Import: In term of Import IBBL during the year 2005 the bank opened Tk. 74525.00 import L/Cs where it was Tk. 59804.00 L/Cs in the year 2002. Which increased by 80%. 3.7:2: Export: During the year 2005 the bank handled Tk. 36169.00 Million export as against 29151.00 Million export in 2004. Which increased by 80.59%. Islami Bank Bangladesh LTD has to follow a restriction for both import and export business as they have to conceder both permissibility of Islami Shariah as well as the rules and regulation of Bangladesh Bank. 3.7:3: Remittance: For quick mobilizing remittance IBBL introduce SWIFT system by which the people who work in foreign can send their money with in short time more over it helps to transfer the L/C’s with in the short period of time as well as in most secure from of transmission. In term of Remittance IBBL during the year 2005 the Bank total Remittance Tk.36948.00 Million where it was 23669.00 million in the year 2004, Which increased by 66.04%. 3.7:4: The Comparative Figure Of Import Export And Remittance Are Given Below: Taka in Million Particulars 2006 2005 % of growth in 2006 over 2005 Amount % of total Amount % of total Import Export Remittance Total
96870.00 51133.00 53819.00 201822.00
48.00% 25.34% 26.66% 100%
74525.00 36169.00 36948.00 147,642.00
50.47% 24.50% 25.03% 100%
29.98% 41.37% 45.66% 36.00%
Growth of Foreign Exchange Business: 2001 to 2005
Million Taka
80000 60000
Year Import
40000
Export
20000
Remitance
0 1
2
3
4
5
Year
Chapter Four General Banking ## General Banking Portfolio: (1)
Bank accept deposit
Bank receive deposit by different accounts. Those are of 2 (two) types of deposits (i) Al Wadiah :- Current A/C is conducted under Al Wadiah system , (ii)Mudaraba mode: - Client - Sahib Al Mall Bank- Mudarib. Under this arrangement- profit distribution under agreement ratio and loss (if any) will be borne by Shaheb-Al-Maal. (2)
Who can open A/C-
(a) persons over 18 ( eighteen) years ( except some restricted person) (b) Account of Club, (c) Association, (d) Agent, (e) Govt. (f) Semi-Govl., (g) Organization, (h) Liquidators, (i) Minor, (i) Married Women, (j) Pordanashin Ladies, (k) Illiterate persons, etc. (3)
Deposits are received through cash or by instruments
(4)
Payment is done by instrument/ document:
(5) General Banking operations done by various departments/ section : (i) Cash section, (ii) Bills and Remittance section, (iii) Clearing house section, (iv) Accounts section is ennoblement is various activities, (v) etc. (6)Function of Cash Section :Cash Receipt
(b) Cash Payment (c) Issuance of Cheque Book (d) Passing, Cancellation and Payment of Cheque (7)Functions of Bills and Remittance section :- Issuance. Payment and Cancellation of DD. IT and P.O. OBC, IBC. (8)Clearing and Collection Department :- Clearing and collection of instruments of different banks through central bank or its representative. (9)Accounts section :- Book keeping, maintenance of vouchers preparation of General ledger & clean cash book. Maintenance of sundry, suspense etc. A/cs for internal purpose. (10) Reconciliation of IBG A/Cs: Branch Credit Advice
IBDA- Inter Branch Debit Advice IBCA - Inter
(11)Custody and maintenance:- Custody and maintenance of AOF, SS Cards, Cheque Books. Ledgers. Statement of A/Cs voucher and secrecy of Accounts. (12)Locker Service (13)Volt &. Maintenance of Strong Room :- Cash & vouchers kept under lock and key under joint custody. Cash covered by insurance. Transaction hour is guarded by armed security guard. 14)Proper House Keeping: Maintenance of Books and Records and Computer (IBBS Software). 4.1# Types of IBBL A bank is essentially an intermediary of short-term investment/funds. It can carry out extensive lending/investment operations only when it can effectively mobilize the savings of the community. A good banker is one who effectively mobilizes the savings of the community as well as makes such use of savings by making it available to productive and priority sectors of the economy thereby fostering the growth and development of the nations’ economy. Accounts are opened under the following two modes: 1. Al-Wadeeah ( Current Account) 2. Al-Mudaraba (Deposit Account) 1. Al-Wadeeah (Current Account): The word ‘Al-Wadeeah’ has been derived from the Arabic word ‘Wada’yn which means to keep/to deposit/to give up/Amanat. As per Shariah , Amanat means to keep something (goods/money/others) to any reliable person/institution for safe and secured preservation of the same keeping its ownership unchanged and which will be returned to the owner of the fund on demand as it is/in original shape. In case of Amanat Bank/any
other institution cannot use, invest and amalgamate the funds without the prior permission of the owner of the Amanat. • • • • • •
The depositor can deposit any amount in this account The depositor can withdraw any amount by cheque No profit is allowed in this account The depositor shall also not bear any loss Cheques, bills etc collected in this account against commission Govt. excise and incidental charge realize from this a/c as per rule.
2. Al-Mudaraba (Deposit Account): The word Mudaraba derived from the Arabic word ‘Darb/Darabun’. Literally it means movement to earn profit (munafa). It is a form of partnership where one of the parties called the ‘Shahib-al-mal’ provides a specified amount of capital and acts like a sleeping or dormant partner, while the other party called the Mudarib (entrepreneur), provides the entrepreneurship and management for carrying on any venture, trade, industry or service with the objective of earning profit. The Mudarib is required to work with honesty and sincerity and to exert the maximum possible care and precaution in the exercise of the functions. 4.2# Mudaraba Deposit Product • Mudaraba Short Notice Account (MSNA) MSA accounts can be treated as semi term deposit. Deposit should be kept in these accounts for at least seven days to get interest of MSA accounts is less then SB accounts. (5.50%) generally profit, but may increase to 6% or more depending on the fund. Check book is issued them but frequent use of checkbook is discouraged. Government organization, big corporate house and banks are generally the clients of this account. The volume of this account is generally large and notice has to be given to draw money • Mudaraba Savings Account (MSA) As per Bangladesh Bank instruction 90% of SB deposits are treated as time liability and 10% of it as demand liability. In EBL there is a restriction about drawing money from SB account but anytime holder may draw money of any amount with prior notice, Generally householder and individuals are the clients of this account. •
Mudaraba Term Deposit Receipt (MTDR)
Fixed deposit are of two kind midterm deposit (MTD) and term deposit (TD) instrument whose maturity period is within one year are known as MTD and those above one year are considered as term deposit (TD). Calculation of profit TDR and provisioning regarding this is quite complicated issue. Profit is calculation at each maturity date and provision is made on that. Also at the month and provision of profit is mode. •
Mudaraba Savings Bond (MSB)
Person aged 18 years and above eligible to be a party will be eligible to purchase this Mudaraba Saving Bond in single name or in joint names by depositing cash or Cheques through deposit voucher. Educational institution, clubs, association and non- trading and non-profit earning socio-economic institution will also be eligible to purchase the bond in the name of the institution. •
Mudaraba Special Scheme (MSS)
For the middle and lower middle class professional and service holders, Mudaraba special Savings Scheme creating an opportunity for them ensuring saving on monthly installment basis for their future financial security and welfare in their retired life. It provides an opportunity to build up saving b by contributing small monthly installments to gain an attractive amount either at a time or monthly at the end of a specified period as per contract on the basis of amount deposited. The term specified for 5 and 10 years. •
Mudaraba Monthly Profit Distribution Scheme (MMPDS)
Considering the demand of the retired service holder and wage earner residing abroad who want to help their dependants or relatives by contributing a certain amount of money on monthly basis from the profits of their one- time deposit with the bank , the Mudaraba Monthly Profit Deposit Scheme has been designed.. •
Mudaraba Muhor Savings Account (MMS)
This scheme will help married men to save money as per their capacity to build up the Muhor amount to be paid their wives.Any married bonnafied citizen of the country with sound mind can open this account in his Wife’s name under MMS by application in bank’s printed application formdesigned for this purpose. •
Mudaraba Waqf Cash Account (MWCA)
•
Mudaraba Hajj Savings Account (MHSA)
In order to fullfil the dreams of thousands of Muslims to perform Hajj, Islami Bank B L has come up with a most appropriate scheme to build up the hajj expence gradually. This scheme is enjoying he highest weightsge for sharing rofit among the participating funds.It encourages people of all income level to take part in it. Even an individual who has ability to pay a meager monthly installment, egularly can implyment his dreame inhis life. •
Mudaraba Foreign Currency Deposit
4.3# Different Types of Account Holders Anyone can open an account with the banker if he is not incapable of entering into a valid contract and the banker is satisfied of his bonafide and is willing to enter into the business relations with him. There are certain types of accounts in regard to which the banker should
take note of the relative laws and exercise pre-cautions in order to safeguard its interest. Some types are: • • • • • • • • • • • • •
A/c opened by minors Joint (two or more persons) Firms Co-operative societies Government Public bodies Agents Executors Administrators Trustees Liquidators Receivers Non-Reside
4.4# Account opening General Practice at Regarding Accounts Opening This section opens account. It receives account opening application from the interested applicants, examines and scrutinizes the applications and then selects final customers. Selection of customers is very much important as the success and failure of the bank is largely dependent on the valued customers. If the customer is found to be fraudulent or create some sort of forgery, it will ultimately destroy the goodwill of the company. And this is an era of keen competition among banks. Most of the commercial banks vie with one another in tapping the savings of the public by means of purchasing of different types of financial product. These products are known as secondary securities, which shows claim against the financial institutions. Popularly these products are known as deposit; of different kinds and of various maturate. The most popular products are current-deposit (CD), savings bank deposit (SB), fixed deposit, short-term deposit etc. 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 MSA, AWCA, TDR etc. Date of opening name of the account holder, nature of business, address, initial deposit, and introduction various information are recorded in that register. New accounts number is given from the list of new numbers provided by the computer department. The following formalities must be maintained by the customer for opening of different types of account. 4.4: A: Individual i. ii.
Genuine & acceptable introduction Attested photograph of the account operator’s/A/c holder’s
iii.
Certificate from the Chairman/ Commissioner/ Gazetted Officers or any responsible person Verification of introducer’s signature Admittance of the signature(s) of opener/ operator’s A/c Transaction profile Obtain KYC Declaration/Undertaking Letter of Thanks (a) It must be sent to the A/c holder and introducer (b) Office copy to be affixed with the AOF (c) It will have to be dispatched under registered courier (d) Courier /Postal receipt must be affixed to the AOF (e) This receipt must contain the A/c number against which the letter has been sent (f) After receiving back of the acknowledgement, it must be affixed with concerned AOF for easy location in case of need (g) If the letter of thanks is returned back, without delivery for non-availability of address or person, it must be marked on this letter and to be informed to the computer department.
iv. v. vi. vii. viii. ix.
4.4: B: Joint Account i. ii. iii. iv. v. vi.
(d) vii.
viii.
All item for individual account holder as stated above Two or more persons can open an account Authorized person can operate the account Authority is automatically revoked by death, insanity or bankruptcy Stoppage of payment by any one of the account holders Special instruction regarding operation of the A/c in any of the following forms: (a) By any of the Joint account holder singly (b) By either or survivor singly (c) By either singly By any two or more joint account holding jointly (e) By all the survivors jointly Accounts mandate-regarding drawing, survivorship, power to overdraw and other matter, i.e. for withdrawal of goods kept for safe custody, separate mandate from surviving persons, closing of debit a/c, stopping operation of a/c after instantly of any person, obtain receipt made by survivors and representatives of deceased persons. Role of survivorship incase of joint-account by husband and wife: If the account is opened for convenience of husband, then the balance cannot be claimed by the window but to be sent to the estate of the deceased person. But, if the account is opened for the provision for wife, then the widow can claim the balance in full.
4.4: C: Sole Proprietorship
In case of opening an account by a sole-proprietor of a firm, he/she should sign the account opening form and furnish his specimen signature showing his representative character. i. ii. iii.
All items for individual account holder as stated above. Valid trade license or attested photocopy thereof issued by the competent authority Membership certificate from local business association/Chamber of Commerce
4.4: D: Partnership Firm A banker should not open an account in the name of a partnership unless one or more of the partners apply to him to do so. Except where the partner, making an application for the opening of an account in the firm’s name, is deprived of the power, which fact is known to the banker, there can be no legal objection to a banker opening an account in the name of the firm at request. Failure, however, to make proper enquiries by referring to the partnership agreement or any other record in writing which maybe available before opening of account on behalf of a firm in a partner’s name may lead a banker in trouble. i. ii. iii. iv. v. vi.
vii.
All items for individual account holder as stated above. Valid trade license or attested photocopy thereof issued by the competent authority Two or more person can form a partnership firm by partnership deed. (Registered notarized) Clear mandate for operating the a/c from the partners regarding name of the persons to draw cheques and borrow money, to overdraw, to mortgage or to sell properties owned by the firm In case of insolvency of the firm: Operation should be stopped after receiving notice of insolvency of the firm Insolvency of the partner: If the balance is in debit, the a/c must be closed and the debt should be proved to the receiver. If the a/c is in credit the other partners may continue the account. Any cheque previously drawn by the partner’s maybe paid on the confirmation of the partners. Death of a partner: If the account is in credit, then other partners may be allowed to continue the same but the bank should take fresh mandate from other partner but if the account is in debit then the account must be closed to determine the liability of the deceased’s estate.
4.4: E: Private Limited Company A company registered under the Companies Act, 1913 has a legal entity apart from its shareholder. Private Company means a company which by its articles: • • •
Restricts the right to transfer the shares if any; Limits the number of its members 2 to 50 Prohibits any invitation to the public to subscribe for the shares, if any or debentures of the company.
When a current account is to be opened for a private limited company the banker will have to obtain the following requirements: i. ii. iii. iv. v.
I. All terms for individual account holder as stated above Copy of memorandum and articles of association duly certified by the Secretary/Director of the company Certificate of incorporation Certified copy of resolution of the board of Directors regarding opening of a/c, the execution of papers and conduct of the account. List of Directors under the signature of the Chairman Copies of latest financial statement/ Transaction profile.
4.4: F: Public Limited Company Any seven or more persons associated for any lawful purpose, any subscribing their names to a memorandum of association and otherwise complying with the requirements of the Act (13A) in respect of registration, from an incorporated company. When an account is to be opened in the name of a Public limited Company the following formalities are to be observed: i. ii. iii. iv. v. vi.
All terms for individual account holder as stated above Certified copies of memorandum and article of association are to be submitted Certificate of incorporation Certified copy of commencement of business for inspection and return in case of a newly floated company List of Directors under the signature of the Chairman to be furnished Certified copy of a resolution of the Board or Directors regarding opening of the bank a/c execution of the papers and conduct of the account to be furnished
4.4: G: Trust Account: A trustee is a person entrusted with the work of the management of a property under a trust created by the owner thereof for the benefit of another or of another and the owner section 3 of the Trust Act 1882 defines “ trust” & a trustee as, “ A trust is an obligation annexed to the ownership of property and arising out of confidence reposed in and accepted by the owner, or declared and accepted by the owner or declared and accepted by him, for the benefit or another or of another and the owner, the persons who reposes or declares the confidence is called the trustee.” i. ii. iii. iv. 4.5# Profit:
All terms for individual account holder as stated above. Trustee is a person entrusted with the work of a management of a property under a trust deed. Discharges his duties as per trust deed Attested photo is required
Profit is the price of product which is determined by the market forces. Every bank offers a competitive price to attract deposit. YEAR 3MT 12MTII 36MTH PLS SND HAJJ 5YRS 8YRS 5 YRS 10 YRS 200 6.50 6.80 7.10 7.30 7.50 5.50 3.50 8.20 8.20 9.40 8.20 9.80 # Provisional.
Principles of Distribution of Profit to Mudaraba Depositors: The principles of calculation and distribution of profit to Mudaraba Depositors generally followed by different Islami Banks are as under: 1.
Mudaraba Depositors share income derived from investment activities i.e. from the use of fund.
2.
Mudaraba Depositors do 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 Transfers and Mail Transfers etc.
3.
Profit and loss resulting from the use of funds is separately maintained in the accounts from other income and expenditure relating to other activities and services offered by the Bank.
4.
Mudaraba Deposits get priority in the matters of investment over Bank's equity and other cost free funds.
5.
Mudaraba Depositors do not share any income derived from investing Bank's equity and other cost free fund.
6.
The amount of the statutory cash reserve and the liquidity reserve which are required to be maintained with Bangladesh Bank is deducted from the aggregate balance of Mudaraba Deposits to arrive at the net balance of profit sharing deposit.
7.
The gross income derived from investments during the accounting year is, at first, allocated to Mudaraba Deposits and cost-free-funds according to their proportion in the total investment.
8.
The share of gross investment income of Mudaraba Deposits as worked out in terms of principle shown against serial No 7 above is distributed as under:
a)
Minimum sixty-five (65) percent is distributed to Mudaraba Depositors applying the rates of weight age shown below. Mudaraba Depositors' share of sixty-five (65) percent of gross investment income might further be raised by the Bank's Management at its discretion to rationalize the Rates of profit to Mudaraba Depositors but it would not be reduced during any accounting year without giving prior declaration.
b)
The rest amount of gross investment income is retained by the Bank as management fee for managing the investment & for making reserve for Bad & doubtful investments.
9.
Islami Bank Bangladesh Ltd, at present, applies the following weight ages to Mudaraba Deposits.
SI. No.
Particulars of Deposits
Weight age
1 a)
2 Mudaraba Hajj Savings 10 Years Term 5 Years Term Mudaraba Waqf Cash Deposit Account Mudaraba Special Savings (Pension) Above 10 Years Term Upto 10 Years Term Mudaraba Muhor Savings Account 10 Years Term 5 Years Term Mudaraba Savings Bond (MSB) 8 Years Term 5 Years Term Mudaraba Monthly Profit Deposit (MMPDS) Mudaraba Term Deposits 36 Months 24 Months 12 Months 06 Months 03 Months Mudaraba Savings Mudaraba Special Notice Deposit
3
i) ii) b) c) i) ii) d) i) Ii) e) i) ii) f) g) i) ii) iii) iv) v) h) i)
130% 110% 135% 135% 130% 130% 110% 125% 110% 120% 100% 98% 96% 92% 88% 75% 55%
10. Differential rates of weight ages have been assigned to Mudaraba Depositors on account of the following factors: a) 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. b) Banking Facilitie 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 and so on and so forth. On the other hand, the PLS Savings Depositors have freedom to get the above services through their accounts. PLS Short Notice Depositors enjoy still greater facilities in regard to making deposits in and withdrawal from their accounts.
c)
The pattern of Rates of Return on various types of cost bearing deposits of the traditional Banks in our Money Market have also an important bearing on allocation of weight age at different rates.
d)
In consideration of the above factors, full weight age has been assigned to our Mudaraba Deposits of 36 months and relatively lower Weight ages have been given to Mudaraba Deposits of lower periods, Mudaraba Savings and Mudaraba Short Notice Deposits.
11. On the basis of the above principles, let us work out the rates of profit using the information and figures given below: a) Total Investment .b) Total Investment Income
Tk. 2000/Tk. 300/-
c) Total fund employed i) Banks equity and Al-Wadeeah Deposits Tk. 300/ii) Mudaraba Deposits Tk. 1700/Tk. 2000/Therefore the share of investment income of Mudaraba Deposit will be (300/2000x1700) Tk. 255.00 Less: a) 20% Management fee Tk. 51.00 b) 15% loss off-setting reserve Tk. 38.25 Distributable Income Tk. 89.25 Tk. 165.75 4.6# Closing Of an Account It could be closed either by a banker or by the customer itself. Banker: If the customer does not have transaction with the bank for more than a year it may categorized as irregular. And if the customer does not have transaction for 10 years, the customer will be sent a letter. Customer: If the customer intentionally wants to close the account he/she has to write an application forwarding the Manager with reasons behind the closure of the account. 4.7#Cash Section A banker’s transactions are mainly of three types. They include: • • •
Cash Transfer & Clearing
The cash section of any bank plays very significant role in general banking department because, it deals with most liquid assets. It also sensitive as it deals with liquid money. Maximum concentration is given while working on this section. As far as safety is concerned special precaution is also taken. Tense situation prevails if there is any imbalance in the case account. Basically cash department is the most vital and sensitive department of the branch which deals with all kinds of transaction in cash. All cash receipts and payments are made through this department. The IBBL (ge Branch) is equipped with electronic machinery with fully computerized system which delivers quick service to its valued customers. This section receives cash from depositors and pay cash against cheques, draft, Pay order (PO), etc over the counter. This section accepts cheques from the depositors for payment in cash. The drawer who wants to receive money against cheque comes to the payment counter and presents the cheque to the officer. He verifies the following information: I. II. III. IV. V. VI.
Date of the cheque Signature of the account holder Material alteration Whether the cheque is crossed or not Whether the cheque is endorsed or not Whether the amount in figure and in word corresponds with each one
Then the officer checks the cheque from the computer for further verification. Here is the following information that is checked. I. Whether there is sufficient balance or not II. Whether there is stop payment instruction or not III. Whether there is any legal obstruction or not The cash section deals with all type of negotiable instruments. It also includes the Vault which is used as the store of the cash instruments. The vault is insured up to a certain amount, which is called the vault limit; the excess cash is then transferred to Bangladesh Bank. The IBBL, Gulshan Branch Vault limit is 1.5 crore. When the excess cash is transferred, the cash officer issues IBDA. The vault counter is around 35 lacs. Any client who wants to deposit money will fill up the deposit slip and give the form along with the money to the cash officer over the counter. The cash officer counts the cash and compares with the figure written in the deposit slip. He then puts his signature on the slip along with the ‘cash received’ seal and records in the cash receive register and also in the computer against the account holder. 4.8#Bill and Clearing Section A cheque is a bill of exchange drawn on a specified banker and not expressed to be payable otherwise than on demand. [Section-6, Negotiable Instrument Act, 1881]
A cheque may be an open cheque (which can be presented for payment by the holder) or a crossed cheque (which can be paid only through a collecting banker.) The picture below (Fig.1) shows a typical cheque issued by banks.
Figure 1 Cheques of its customers are received for collection from other banks. In case of receiving cheques, following points should be checked very carefully: • • • •
The cheques should not carry a date older than the receiving date for more than 6 months. In that case it will be a stale cheque and it will not be allowed for collection. The amount in figure and words in both sides of the pay-in-slip should be same. The name mentioned in the cheque should be same in both side of the pay-in-slip and it should be the same with the name mentioned in the cheque The cheque must be crossed
The place where banks meet and settle their dues is the clearing house. The clearing house of the IBBL, Gulshan Branch, and 42 Motijheel is the local office. 4.9# Types of Cheques Inward clearing Cheques: Inward Cheques are those ones drawn on the respective branch which have been presented on other banks and will be cleared/honored through the clearing house. For example, the cheque drawn on IBBL, Head Office. Outward Cheques: These cheques are received on the counter from other banks. There are 3 types: 1. Drawn on another branch of IBBL. These are called Outward Bills for Collection (OBC). 2. Drawn on another bank, which is situated in the clearing house area. This cheques are called clearing cheque.
3. Drawn on another bank, which is situated outside the clearing area. This cheques are also called as OBC. In the first case, these cheques are directly sent to the respective branch and requests them to send IBCA (Inter Bank Credit Advice) by which a branch credits the account of another branch. No clearing house formalities are necessary here. When IBCA comes, then customer’s accounts are credited of the amount for the cheque. In the second case, the cheques are sent to the clearing house. When the drawee bank honors the cheque then the account of the depositor against the cheque is credited. In the third case, two procedures exist. First way, if the bank exists within the clearing house area of the drawer bank, then we send the cheque to that branch of our bank and that branch collects the proceeds through clearing house formalities and sends an IBCA to us. In the second case if there is no branch of our bank, then we directly send the cheque to the drawee bank and request them to send the cheque to the proceeds by TT, DD or by other means. 4.9.1: Outward Bills for Collection (OBC) OBC are those cheques drawn on other banks which are not within the same clearing house. An officer gives OBC seal on this type of cheques and later sends a letter to the manager of the branch of the same bank located in the branch on which cheque has been drawn. After collection of that bill, branch advice the concerned branch in which cheque has been presented to credit the customer account through IBCA. In absence of the branch, officer sends a letter to the manager of the bank on which the cheque is drawn. That bank will send pay order in the name of the branch. This is the procedure of OBC mechanism. 4.9.2: Inward Bills for Collection (IBC) All clearing cheques are not received on the counter. Some cheques are received from other source for collection. These cheques are received from other branch of IBBL. These cheques are settled by sending IBCA. 4.10#Remittance Remittance means transmission/transfer of money from one place to another. remittance represents remittance that takes place within the territory of a country.
Local
Banks have a wide network of branches all over the country and offer various types of remittance facilities to the public/customer/client etc. Virtually there are three types of remittances as under: • • •
DD- Demand Draft TT – Telegraphic Transfer PO - Payment Order
4.10.1: Demand Draft
According to Section85 (A) of the negotiable instruments Act, a demand draft is “an order to pay money drawn by one office of the bank upon other office of the same bank for a sum of money payable to order on demand.” The followings are essential features of a demand draft issued by the bank: 1. It is a negotiable instrument 2. It is drawn by one office of a bank upon another office of the same bank 3. It is payable on demand. 4. Its payment is to be made to the person whose name is mentioned in the instrument or according to order. In other words, it can not be made payable to the bearer. 4.10.1.A: Issuance of DD 1. A prescribed Application Form bearing No (F20). The following columns should be filled in properly. (a) Name & address of the applicant (b) Telephone No (c) Date (d) Signature of the applicant (e) Name of the payee (f) Drawee branch (g) Amount in words and figure 2. Commission to be realized/charged as per Head Office circular, at present @0.1 % but min TK.10/3. Total amount should be deposited by the party in cash or cheque as per arrangement. 4. Printed DD block/leaf to be filled in by a bank official as per request of the purchase i.e. (a) Name of the issuing branch (b) Date (c) A/c payee rubber stamp (d) Payee’s name (e) Amount in words and figure (f) Drawee branch 5. DD should be signed by two authorized officials 6. Test Number should be given for DD of TK. 25000/- and above 7. Amount should be written by a cheque written in red ink. 8. Particulars of DD should be entered in DD issue registered B-44 under supervision of a authorized official. 9. Telegram/Telex should be sent for amount exceeding Tk.1.00 lac Telex/Telegram charge should be realized from the customers. 10. If the DD issued for cash payment A/c payee rubber stamp should be cancelled and a letter requesting the drawee branch to pay the DD in cash should be issued under sealed cover and signature of the payee should be attested. 11. DD Advice should be sent on the same day. 4.10.1.B: Accounting entries for issuance of DD Debit…………..Cash/party’s A/c Credit………….IBGA Credit………….Commission
4.10.1.C: Payment of Drafts 1. When the draft is presented to the drawee branch for payment, the particulars of the draft are checked with the advice and signature(s) therein verified. 2. Payment of the DD has not been stopped is to be ensured 3. Verification of Test no. is to be done. 4. In case the advice is not received when the draft is presented, the bank will pay the draft, after satisfying itself that the instrument is in order. However, on payment of a draft in the absence of the relative advice the drawee branch should inform the issuing branch and obtain confirmation about the payment. 5. The drawee branch should ensure that the payment of the instrument is made in due course. 6. As the demand drat is payable to order it is duty of the paying branch to obtain identification of the payee if payment is desired over the counter. 7. If the DD is presented through a bank, the endorsement appearing on the instrument should be prima-facie in order of certified by the collecting banker. 8. Though there is no time limit for presentation, the paying bank should put an enquiry if a draft is presented after a reasonable period say 6 months. Such draft may be paid if the collecting banker certifies that amount has been credited to the payee’s A/c in absence of such a certificate, it would be advisable to return the draft for revalidation before payment. 4.10.2: Telegraphic Transfer (TT) Telegraphic Transfer is by far the quickest method of transferring funds form one place to another. Some times, the remitter of the funds requires the money to be available to the payee immediately. In that case the banker is requested by the remitter to remit the funds telegraphically. It is an instruction conveyed by telegraph/telex/telephone to the drawee branch for paying certain amount of money to a specified person. 4.10.2.A: Accounting entries for issuance of TT Debit…………..Cash/Remitter’s A/c Credit………….IBGA Credit………….Commission Credit………….Telex/Telephone Charges A/c 4.10.2.B: Accounting entries for payment of TT Debit …………. IBGA A/c Credit…………. TT Payable A/c Debit………….. TT Payable A/c Credit…………. Client’s A/c 4.10.3: Payment Order Payment order is meant for making payment of the banker’s own or of the customers dues locally and not for effecting any remittance to an out station. In a sense, the payment order is used for making a remittance to the local creditors.
4.10.3.A: Issuance & Payment of PO 1. F-19 form should be filled properly 2. Total amount should be deposited through cheque/cash. 3. Commission to be realized as per bank’s circular 4. Printed payment order leaf should be filled in as per F-19 and signed by two authorized officers. 5. Entry should be given in B-22 register under supervision of authorized official 6. The instrument should be handed over to the purchaser 7. PO is required to be discharged by the beneficiary where applicable on revenue stamp of appropriate value against in cash or through account. Remarks: No Test is required for PO 4.11#Cash Packing and Handling Cash packing and handling needs a lot of care as any mistake may lead to disaster. Packing after banking hour when the counter is closed, cash are packed according to denomination. Notes are counted several times and packed in bundle, stetted and stumped with initial. 4.12#Despatch of Letter Letter emanating from various departments and section will be bear their reference number and outward serial number will be given by the dispatch section. The office in charge of the dispatch section must ensure prompt dispatch of the letters. Postage stamp used will be checked carefully by the Officer-Incharge of the dispatch section by the physical verification of the same with the relative Despatch Register. To ensure dispatch of the letter to the correct address the authorized official of the dispatch section must check the address written on the envelop with the address written on the letter inside the envelop before it is closed. Normally letters are dispatched through postal deptt. In the form of Ordinary, Registered, Registered Parcel, Under Certificate of Posting (UCP), Book Post ( ordinary / registered ) Guaranteed expressed post (GEP) for inland services and Emergence Mail Services (EMS) for abroad, Besides, Courier Services for Domestic and Foreign may be used for the purpose for which separate Register may be used. 4.13#Clearing and Collections: Clearing and collection are very important items of banks business and without which we cant think of bank transaction effectively. All Cheques, Demand Draft and other credit instruments tendered for the credit of customers account are delivered by post are to be sent over to the clearing and collection counter. Both Usance and Demand bills are received at branches for collection or realization. Clearing is a process of collection and payment of instrument (Cheques, pay order, draft etc.) through their bank settlement under the leadership of Bangladesh Bank or Sonali Bank where BB is not available.
Clearing House arrangement has been established for settlement of payment of different instrument of different banks of City Corporation area branches. Bangladesh Bank generally acts as organizer of clearing house and Sonali Bank do the job on behalf of BB, where there is no BB. Every local schedule bank is the member of the clearing house. 4.14#Locker Services: Some branches are provided with save deposit Lockers by Head office to enable them to offer facilities to the public for safe deposit of their jewelry, important documents and other valuables. The locker holder must have a Mudaraba savings accounts or current accounts with the satisfactory transaction or balances .Minimum balances of TK 5000/- is to be retained in the account of the locker holder. Locker will be leased out on the basis of application in the prescribed form F-195 which contains the detail term and condition of hiring the locker printed at the back page thereof. Locker holder may nominate nominee for receiving valuables in case of death of him or her. In al cases a password shall be given to all locker holders and the same shall be recorded in the specimen signature card to facilitate operation of locker without doubt. Bank is not responsible for any loss or damage of the things kept in the locker by riot, robbery, fire or natural incident. 4.14#Reconciliation: Reconciliation is nothing but the work done at head office, Reconciliation Deptt., Financial Administration Division to check-up whether all entries originated by branch are being responded duly by the contra branch also to check whether the entries responded by a branch are actually originated by the concerned branch comparing the date of originating entry, branch code, advice no., transaction code and the amount through the computer. Reconciliation Process: Thereafter they shall match the advices in respect of original entries including original reversal to the credit or debit of branches by which the entries have been reversed. The aforesaid entries shall be recorded in IB General Account Subsidiary Ledger Branch-wise as well as entry wise against which reconciliation shall be made by referring the responding entries as shown in the statement of IB General Account. But if it is said that some entries originated by the branch are not responded as per Branch statement of responding entries, the same are treated as un- reconciled entries raised by the branches. It may also be found that some entries responded by branch as per branch statement of responding entries but remain un-matched due to various reasons, which are treated as un-reconciled entries raised by the branches. 4.15#Voucher: Vouchers are the evidence of transactions. The need for vouchers to authenticate individual transaction based on primary documents to support entries in the bank’s book account in self-evident. The document which provided the basic of transaction, do not, ordinarily, contains sufficient detail to enable the bank to make necessary entries in its books. A form of agreement, for example, obtained at the time of granting accommodation to a constituent does not indicate the particulars head of account to which the borrowing are to
be allocated. Vouchers are, therefore used as intermediaries between the basic documents such as the Demand Promissory Note, Deed of Hypothecation, Memorandum of sale or purchase of goods etc. and the books of accounts. Vouchers may, as such, be defined as those instruments of the bank and which, among other things, indicate which account is to be debited or credited in respect of transactions they purport to record.No payment or receipt of cash and no transfer transaction will either be effected or recorded in the books account of the bank unless there is a voutchermade to cover it. 4.16#IB Gen. A/C: IBG account is the account through which inter-branch and branch head office’s transaction and vice-versa of Islami Bank Bangladesh Ltd are being routed is termed as Islami Bank General Account (IBG A/C). The types of transaction routed through the account may be enumerated as follows:
1. Cash Remittance 2. D.D. Issued 3. M.T. Issued 4. T.T. Issued 5. Bills 6. OBC 7. Clearing 8. Cost of F.C. & I.C. 9. Transport Bills 10. F.B.P.N. 11. F.C.D.P. 12. Cheques returned in Clearing 13. Remittance 14. Sundries Chapter Five Investment Investment is the action of deploying funds with the intention and expectation that they will earn a positive return for the owner (Brokington 1986, p.68). 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. 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. 5.1# Investment Objectives of IBBL The objectives and principles of investment operations of the Banks are:
• • • • • • • • •
The investment fund strictly in accordance with the principles of Islamic Shariah. To diversifies its portfolio by size of investment, by sectors (public and private), by economic purpose, by securities and by geographical area including industrial, commercial and agricultural. To ensure mutual benefit both for the Bank and the investment client by professional appraisal of investment proposals, judicious sanction of investment, close and constant supervision and monitoring therefore. To make investment keeping the socio-economic requirement of the country in view. To increase the number of potential investors by making participatory and productive investment. To finance various developments schemes for poverty alleviation, income and employment generation with a view to accelerating sustainable socio-economic growth and upliftment of the society. To invest in the form of goods and commodities rather than give out cash money to the investment clients. To encourage social upliftment enterprises. To shun even highly profitable investment in fields forbidden under Islamic Shariah and is harmful for the society.
5.2# Strategies Risk in the investments and return thereon are interrelated. An investment policy that emphasizes a high return must accept relatively high risk. Conversely, an investment policy that will tolerate only small amount of risk must be prepared to accept a relatively low return. As such, it is really difficult whether to select a high return port-folio on high risk or low risk port-folio with a low return. Nevertheless, considering all aspects following guidelines shall be followed as strategy for banks investments.
i.
If two port-folios have the same risk but different returns, the port-folio having higher return shall be preferred.
ii.
If the two port-folios have the same expected returns, but different degrees of risk, the port-folio with lower risk shall get preference.
iii.
If one port-folio has both a higher return and a lower risk than another, the first port-folio shall be preferred.
iv.
Keeping in view the risk factor, the bank shall maintain flexibility in determination of rate of return on investments on case to case basis in consideration of the risk element involved in the respective investment.
v.
Emphasis is given for expansion and strengthening cottage and small industries sector and rural industries. This immensely potential industrial sub-sector shall create employment opportunities to rural and semi-urban population and shall have positive contribution in employment and income generation and poverty alleviation of the low-income group.
vi.
Investment facilities shall be extended for establishment and expansion of export oriented forward / back ward linkage and import substitute industries.
vii.
The bank requires retaining 10% of its total deposit liability as Statutory Liquidity Ratio (SLR) including 4% Cash Reserve Ratio (CRR) with the Central Bank. The bank may go for investments up to 90% of its total deposit. The perspective investment plan is being formulated quantifying the allocation of investments size-wise, sectorwise, geographical area-wise, economic purpose-wise, security-wise and mode-wise keeping in view 20% projected growth of deposit each year.
viii.
Taking into consideration the broad objectives of the bank, national priority, socioeconomic need, growth level of the economy, the investments port-folio of the bank may gradually be diversified and allocated in term of size, sector, geographical area, economic purpose, security and mode.
ix. x. xi. xii.
Safety, security, profitability and liquidity of Bank’s investments. Each branch invests, at least 50% of its deposits locally. Enhance of extending limit of good investment clients. Adopting of modern technology
So, banks investment policy, investment planning and investment budgeting, till situation changes / improves, shall aim at promotion of quality general investment. 5.3# Investment mechanism of IBBL
Bai- Mechanism
Share Mechanism
a) Bai-Murabaha b) Bai-Muajjal c) Bai-Salam d) Istishna’a
a) Mudaraba b) Musharaka
Ijara Mechanism
a) Hire Purchase b) Hire Purchase Under shirkatul Melk
5.3.1: Bai-Murabaha Bai-Murabaha may be defined as contract between a buyer and a seller under which the seller sells certain specific goods (permissible under Islamic Shariah and the Law of the land), to the buyer at a cost plus agreed profit payable in cash or on any fixed future date in lump-sum or by installments. The profit marked –up may be fixed in lump-sum or in percentage of the cost price of the goods.
5.3.2: Types of Murabaha In respect of dealing parties Bai-Murabaha may be of two types. A.Ordinary Bai-Murabaha If there are only two parties, the seller and the buyer, where the seller as an ordinary trader purchases the goods from the market without depending on any order and promise to buy the same from him and sells those to a buyer for cost plus profit, then the sale is called Ordinary BaiMurabaha. B.Bai-Murabaha on Order and Promise If there are three parties, the buyer, the seller and the Bank as an intermediary trader between the buyer and the seller, where the bank upon receipt of order from the buyer with specification and a prior outstanding promise to buy the goods from the Bank, purchases the ordered goods and sells those to the ordering buyer at a cost plus agreed profit, the sale is called “BaiMurabaha on Order or Promise�, generally known as Murabaha. This Murabaha upon order and promise is generally used by the Islami Banks, which undertake the purchase of commodities according to the specification requested by the Clients and sale on Bai-Murabaha to the one who ordered for the goods and promised to buy those for its cost price plus a marked-up profit agreed upon previously by the two parties, the Bank and the Client. In this Bank, Bai-Murabaha is treated as a contract between the Bank and the Client under which the Bank purchases the specified goods as per order and specification of the client and sells those to the ordering client at a cost plus agreed upon profit payable within a fixed future date in lump-sum or by fixed installments. Thus it is a sale of goods on profit by which ownership of the goods is transferred by the Bank to the Client, but the payment of the sale price (cost plus profit) by the Client is deferred for a fixed period. It may be noted here that, in case of Bai-Muajjal and Bai-Murabaha, Islamic Bank is a financier to the Client not in the sense that the Bank finances the purchase of goods by the client; rather it is a financier by deferring the receipt of sale price of the goods sold by the Bank to the Client. If the Bank does not purchase the goods or does not make any purchase agreement with seller, but only make payment of any goods directly purchased and received by the client from the seller under Bai-Muajjal/ Bai-Murabaha Agreement, that will be a remittance of the amount on behalf of the Client, which shall be nothing but a loan to him and any profit on this amount shall be nothing but interest (Riba). Therefore, purchase of goods by the Bank should be for and n behalf of the Bank and the payment of price of goods by the Bank must be made for and on behalf of the Bank. If in any way the payment of price of goods is turned into a payment for and on behalf of the Client or it is paid to the Client any profit on it will be Riba. It is permissible for the Client to offer an order to purchase by the Bank particular goods deciding its specification and committing him to buy the same from the Bank on Murabaha, i.e. cost plus agreed upon profit. It is permissible to make the promise binding upon the Client to purchase from the Bank, that is, he is to either satisfy the promise or to indemnify the damages caused by breaking the promise without excuse. It is also permissible to take cash/collateral security to guarantee the implementation of the promise or t identifies the damages. It is also permissible to document the debt resulting from Bai-Murabaha by a Guarantor, or a mortgage, or both like any other
debt. Mortgage/ Guarantee/ Cash Security may be obtained prior to the signing of the Agreement or at the time of signing the Agreement Stock and ability of goods is a basic condition for signing a Bai-Murabaha Agreement Therefore, the Bank must purchase the goods as per specification of the client to acquire ownership of the same before signing the Bai-Murabaha Agreement with the client. After purchase of goods the Bank must bear the risk of goods until those are actually sold and delivered to the Client, i.e., after of the goods by Bank and before selling of those on BaiMurabaha to the Client buyer, the Bank shall bear the consequences of any damages or defects, unless there is an agreement with the Client releasing the bank of defects, that means, if the goods damaged, Bank is liable, if the goods are defective, (a defect that is not include in the release) the Bank bears the responsibility. The Bank must deliver the specified Goods to the Client on specified data at specified place of delivery as per Contract. The Bank shall sell the goods at a higher price (Cost + Profit) to earn profit. The cost of goods sold and profit mark-up therewith shall separately and clearly be mentioned in the BaiMurabaha Agreement. The profit mark-up may be mentioned in lump sum or in percentage of the purchase/cost price of goods. But, under no circumstances, the percentage of the profit shall have any relation with time or expressed in relation with time, such as per month, per annum etc. The price once fixed as per agreement and deferred cannot be further increased. It is permissible for the Bank to authorize any third party to buy and receive the goods on Bank’s behalf. The authorization must be in a separate contract. 5.4#Operation Procedures of IBBL’s investment •
Induction of client
•
Application
•
Categorization
•
Processing and appraisal
•
Sanction
•
Documentation
•
Purchase of goods by the Bank
•
Taking delivery of goods by the Bank
•
Sales and delivery of goods to the client
5.4.1: Induction of client • Hole preliminary discussion with the prospective client regarding his investment needs, business experience, viability of the project and Shariah permissibility of the asset the business and the uses of the asset. • Brief him on the salient features of Hire Purchase under Shirkatul Milk mode of Investment. Apprise, in particular, the usual terms and conditions under which the Bank made such investment. Discuss about Client’s equity participation and its immediate availability.
• Look to the past performance of the Client, Check-up Head Office Current Investment Policy and Branch’s track record of Hire purchase under Shirdatul Melk Investment of the item(s). • If the Proposal is found permissible under Islamic principles and suitable, advise the Client to submit formal Application. If not found suitable, regret politely. • Request potential Client to open an Al-Wadeeah Current account. Let him maintain the Current account. Let him maintain the current Account satisfactorily for a reasonable period. (This will generally mean six month). 5.4.2: Application: • • •
Obtain application in triplicate from the client of F-167A and record the same in the Investment Proposal Received and Disposal Register (B-53). Obtain and affix attested photograph(s) of the Proprietor /Partner/Directors/ Trustee/ Administrator on the top right hand corner of the application. Scrutinize the application of the Client to see that(a) All columns are properly field in; (b) Particulars and information given therein are complete and correct in all respects; (c)All required Documents/papers as listed in the footnote for the application is submitted; (d) It is signed by the client as per specimen signature with the bank and duly verified by the authorized official of the bank.
5.4.3: Categorization: Categories the proposal as under: •
Hire Purchase under Shirkatul Melk Commercial: Investment on hire purchase under Shirkatul Melk mode to individual /firm/company /society for commercial purpose shall be termed as hire purchase under Shirkatul Melk Commercial.
•
Hire Purchase under Shirkatul Melk Industrial: Hire Purchase under Shirkatul Melk investment to industrial undertaking in the form of land Shirkatul Melk Industrial, building, machineries, equipment, transport, etc shall be termed as Hire Purchase under
• Hire Purchase under Shirkatul Melk Agriculture: Hire Purchase under Shirkatul Melk investment to agriculture sector in the form of Agriculture equipments, machineries, shallow Tube–well, Tractor, trailers, Transport etc. shall be termed as Hire Purchase under Shirkatul Melk agriculture. •
Hire Purchase under Shirkatul Melk Transport:
Hire Purchase under Shirkatul Melk Industrial in the form of transport –Bus, truck, car, taxi, lunch, steamer, cargo vessel, air transport etc. shall be termed as Hire Purchase under Shirkatul Melk transport. Hire Purchase under Shirkatul Melk Real Estate: Hire Purchase under Shirkatul Melk Industrial in the form of land building, market, apartments, for use /rental shall be termed as Hire Purchase under Shirkatul Melk Real Estate. 5.4.4: Processing and Appraisal: Enter the Application in the “Investment Proposal Received and Disposal Register (B-53) and allot a Serial Number to it. •
Examine Shariah permissibility of the goods. Reject the proposal outright, if not permitted by Islamic Shariah.
•
Check-up Credit Restriction Schedule of Bangladesh Bank and Head Office Current Investment Policy Guidelines.
•
Visit the Business establishment of the Client. Talk to the business and important personalities of the locality to ascertain the Honesty, Integrity and Business dealings of the Client.
•
Request for confidential report of the client from local Bank Branches. Confident Report from Credit Information Bureau (CIB) of Bangladesh Bank through Head Office Investment Division as per Instruction Circular of Head Office in this Regard.
•
Obtain Financial Statement/Balance Sheet of the Client for the last three consecutive years for Investment Proposals of Tk. 50.00 lacs or above as per Head Office Instruction.
•
Inspect Land, Building, other Assets and Properties proposed to be Mortgaged or Hypothecated.
•
Forward Documents, Title Deeds and other relevant Papers to approve Lawyer of the Bank for examination and furnishing his opinion.
•
Obtain Lawyer’s Opinion as per clause No. 8.02.
•
Effective demand, price of the goods, short or long-term duration, quality and other specifications of the goods, availability, etc. of the said or projected goods.
•
Where sale price of the goods is payable by the client at specified future date in lump sum or installments as per proposal.
•
For Bai-Murabaha Commercial and Bai Murabaha Industrial Investment, prepare Appraisal Report on F-167B. For appraisal Bai-Murabaha agriculture and For BaiMurabaha Import use special Appraisal Form devised for each of those, if any.
•
Otherwise F-167B providing the available/required supplementary information. In course of preparation of the appraisal report please ensure incorporation of all information of all information, particulars figures and statistics in Appraisal Form correctly with special attention to the following: Contact primarily with the producers/sellers/suppliers of the goods in the market, study the market price and work out the purchase and sale prices of the goods as per guidelines.
5.4.5: Sanction: •
On completion of Appraisal as provided herein above, of the Proposal is found viable, issue Sanction Advice (F-188) if it is within the business power of the Branch mentioning all the terms and condition is duplicate to the Client and endorse copies to Zonal and Head Offices retaining one copy in the Client’s file duly accepted by the Client.
•
If the proposal is not within the Discretionary Power of the Branch, the Branch shall with Appraisal Report on F-167A and F-167B to Zonal Office/Head Office.
•
If the proposal is within the Business Power of the Zonal Office, Zonal Office shall accord Approval /Regret the Proposal.
•
If the proposal is not within the Business of the Zonal Office shall forward the proposal to Head Office with their views and recommendations.
•
On receiving the proposal and the Appraisal Report along with supporting papers Head Office will either approve or Regret.
•
If the Branch/the Zonal Office /Head Office, the branch will issue the Sanction advice (F-188) with a copy to Zo/HO duly recorded in /Facility Sanctioned Register (B-119) with authority to the investment Client for the limit.
•
If the client duly accepts the sanction terms and conditions enter the particulars of the sanctioned proposal in the limit Register (B-117) allotting a Fixed Serial number for each Client as per Limit Register which shall remain permanent irrespective of the mode(s) so long the Client continues business with the Bank.
•
Open file Client-wise, affixing the Fixed Number allotted to him as per Limit Register (B-117) and Client’s name, address, telephone number be recorded prominently in the inner side of the investment File for easy tracing in case of need.
•
In case of investment to the existing Client, obtain required papers, document with the past performance and outstanding liabilities of the Client, if any and process of sanction the proposal as per instruction laid down here-in-above after due evaluation or study.
5.4.6: Documentation: ► 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 executed i.e. duly filled in, signed, stamped, verified and witnessed where necessary: I. Hire Purchase under Shirkatul Melk Sanction Advice deal-wise duly accepted by the client. II. Hire Purchase under Shirkatul Melk Agreement (Deal-wise). III. Letter of Pledge (Deal-wise)/Mortgage Deed. IV. Single party D.P. Not, if there is no guarantor. V. Double party D.P. Not, if there is guarantor (s) to be made by the Client in favor of the guarantor and endorsed by the later to the Bank. VI. D.P. Not Delivery letter. VII. Letter of Hypothecation for the asset(s) and Client’s stock in Trade/work- in-process. VIII. Letter of Disclaimer, (if stored in Client’s/Party’s own/hired Godown. IX. Insurance policy (If stored in Client’s/Party’s Godown/yard under Bank’s effective control) duly recorded in insurance register. X. Letter of guarantee. XI. Balance confirmation letter. XII. Letter of installments. XIII. Letter of Disbursement. ► If the investment is made collaterally secured by Mortgage of property, obtain the following documents: a) In case equitable mortgage, Memorandum of Deposit of Title Deep (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. d) Original Title Deeds with CS, RS, SA, Mutation Parcha, DCR of the property and Mutation record. e) Up-to-date Rent Receipt. f) Non-encumbrance Certificate along with Search Fee Paid Receipt of the concerned Registry/Sub-Registry office. g) Site plan (Map/Naksha) of the Mortgaged property. h) Valuation Certificate (issued by a competent civil engineer and physically verified by the Branch Officials) countersigned by the Manager certifying the Market value and the
i)
j)
Forced sale value. Value of the land and value of the construction to be shown separately taking the depreciated value of the construction/building into consideration as per standard norms. (The valuation Certificate should be self contained one giving full particulars of the land, i.e. Deg Number, Khatian Number, Plot Number, Holding Number, Mouza Number and name of the Mouza, Schedule (Chowhaddi), mentioning the name of the owners of the Land/Building along with a site plan duly signed by the owners of the property, the Client and attested by a civil Engineer and the Branch Manager). Lawyer’s certification about verification of the Title Deed which should be in clear terms that the property covered by the Title Deeds is free from all encumbrances and the mortgagor(s) have clear valued Title to the property and the same can be accepted as collateral security against the Investment/Facility. Legal opinion should be selfcontained, without any ambiguity and clean in all respects. An Affidavit be sworn in before a 1st Class Magistrate by the owner of the property to the effect that the property offered for mortgage as security is of his own and free from all encumbrances and the owners is/are lawful owners in possession and he/they will not Encumber/Transfer/sale and/or charge the property in any manner whatsoever to other during the continuance of Bank’s Investment without prior clearance of the Bank.
► Where the Investment is secured by pledge/Hypothecation of Stock-in-Trade, Machineries etc., also obtain the following Document: A. Letter of Pledge asset & goods security, for Client’s stocks in Trade/work-in-Process etc. if any. B. Letter of Hypothecation for Client’s stocks, stores, Work-in-Process etc. C. Legal Mortgage of Machineries with full details of each machinery ► In case the investment Collaterally/ Additionally secured by Pledge of Shares of reputed Public Limited Company on Bank’s approved list and quoted in the Stock Exchange, the following additional documents are to be obtained: a. Agreement for Pledge of share along with original share certificates (No share in the name of minor shall be accepted as security). b. Blank Share Transfer Deed in Duplicate – on copy signed, dated and another copy signed and undated. c. Share Delivery letter addressed to the Bank. d. Letter to the concerned Company to register Line in Bank’s favor. This notice shall be sent be registered acknowledgement due post (registered A/D post) and confirmation of recording the Line shall be obtained from the concerned company. e. Letter of authority in Bank’s favor duly signed by the shareholder to collect dividend /Bonus on his behalf on the share pledged to the Band. In case of Investment to partnership Firms, obtain the following Document: I. Copy of partnership deed signed by all partners. II. Copy of partnership deed duly attested by a 1st Class Gazetted officer with the original copy and attested by the incumbent-in-charge of the Branch.
► In case of investment to Private or public Limited Company, obtain the following additional document: I. Obtain certified copy of the Memorandum and Articles of Association of the company to ensure that the company has necessary power to borrow/avail investment from any Bank. II. Resolution of the board Directors of the Company to avail Investment/Facility/Borrow, do Business with IBBL and authorizing the office bearers to execute necessary Documents. III. Personal Guarantee of the Directors of the Company. IV. If the investment is allowed on Hypothecation of assets, in addition to other charge documents, 1st charge under relevant section of the Company’s Act-1994 shall be created in Bank’s favor in respect of Company’s assets prescribed as security. This charge shall be created with the registrar of Joint Stock Companies within 21 days from the date of execution of relative Change Documents. V. Certificate issued by the registrar of Joint Stock Companies under section 114 of The Companies Act-1994 in respect of creation of charges. VI. Copies of Memorandum and Articles of Association with the latest amendments, if any, duly certified by the registrar of joint stock companies and attested by the managing director on every page with official seal of the company and duly verified by the Incumbent-In-Charge of the Branch. VII. A copy of the Certificate of Incorporation duly attested by the Incumbent-In-Charge of the Branch. VIII. A copy of the certificate of commencement of Business (incase of publish Limited company) duly attested by the Incumbent-In-Charge of the Branch. ►In case of investment to a trust organization obtains the following Document in addition to other charges Documents: I. Copy of trust deed duly attested by a 1st class Gazette officer and verified by the incumbent-in-charge of the branch with the original copy. The Trust Deed must contain a clause authorizing the Trustees to do Business with banks and to avail investment facilities /borrow from banks. II. Resolution of the Board of Trustees to do business with IBBL and avail investment/borrow from IBBL. III. The charge documents and all other agreements shall be signed /executed by persons authorized by all the members of the board of Trustees, in Trustees are authorized to delegate their powers by the trust Deed; otherwise all the Trustees must sign/execute the charge documents and all other agreements. IV. Personal guarantee of all the members of the board of trustees must be obtained. ►In case of investment to co-operative security, obtain the following documents also: I. Clearance from the register of co-operative societies for doing business and avail faculties / investment from IBBL within the annual borrowing limit of the society. II. Litter to be issued to; the concerned registrar of co-operative societies under registered A/D Mail informing about allowing investment /facility to the concerned society by the bank as per clearance accorded by him. III. Personal guarantee of the office Bearers of the society if their personal capacity.
IV. A copy of the byelaws of the society duly certified by the registrar of the co-operative societies. Signature of the Client: After completion of Document, enter Document in Documents Execution Register (B-103) Movement of Document, if any, should be duly recorded in the Document Ex-custody Register duly singed by the Custodians. 5.4.7: Purchase of Goods by the Bank I. That the goods desired by the Client are first purchased by the Bank and the ownership of the Bank on the goods is established, i.e. Bank must transform its money into goods. II.
That after purchase of the goods, the risk of the goods is borne by the Bank until the possession of the Merchandise has been passed on the Client.
III.
That the specification of the goods, delivery schedule and other terms of contract are fulfilled.
IV. Obtain deal-wise application Order for Purchase on F-136 after due study. V. Open investment account in Investment Account Opening Register (B-102). VI. Enter the Account Particulars in the Investment Ledger (B-105). VII. It should be carefully noted that purchase of goods shall be made only after completion of all the Documentation formalities, including Pre-Audit memo (F215). VIII. In case purchase of Bai-Murabaha goods by the Bank on Credit/deferred payment basis, the Bank shall execute a Credit Purchase Agreement with the seller to that effect mentioning date of delivery of Goods to the bank and that of payment by the Bank. IX. If the goods are to be purchased from the local or outstation market and money is to be paid/remitted thereof and other expenses such s TA/DA, transportation etc, shall be borne by the Bank, which shall ultimately be loaded on the cost of Goods. 5.4.8: Taking Delivery of Goods by the Bank: I. After finalization of purchase of Bai-Murabaha Goods either by the Bank officials or through any Agent from the local or out station market the Bank shall request the seller to delivery the goods purchased to the Bank’s Authorized official /Agent or to the Bank Godown against proper acknowledgement.
II. After taking delivery of the goods by the Bank or trough and Agent, the Bank shall make payment of the price of the goods to producers /sellers /supplier through DD/TT/PO against Cash memo which will exclusively be issued in the name of the Buying Agent. III. The Bank shall not be invest in such cases where the allotting Authority will not accept the Letter of Authority and agree to deliver the goods to the Bank as per authorization of this Allottee. 5.5# Some general instruction: I. The concerned department of head office, from time to time will supply rates stamp duty on various types of document. II. The incumbent in charge/-authorized official in pencil should verify signature of the client on document. III. Before preserving the documents in strong room, the investment committee of the branch should certify that all the formalities of documentation have been properly done and completed strictly as per terms of the sanction advice (A format to be developed for the certificate as per Performa). IV. After completion of documentation, enter the documents in documents execution register; put into an envelop/ file cover duly inscribing the name of the client deal-wise and preserve in the strong room in fire proof safe/Almirah under Joint custody of the incumbent-in-charge of the branch and the officer-in-charge of the investment department 2nd officer of the Branch. Investment of Bank stood at Tk. 59,007.49 million as on 31.12.2003 as against Tk. 46,280.61 million showing an increase of Tk. 12,726.88 million i.e. percent as against 27 percent growth of investment of the banking sector. 5.6#Special Scheme under Investment Scheme 5.6.1: Household Durable Scheme: Islami Bank Bangladesh Limited has introduced Household Durables Investment Scheme which has already created great enthusiasm among the people and received tremendous response from them. Objectives are to assist the service holders with limited income in purchasing household articles such as Furniture, Electric and Electronic equipments like Television, Refrigerator, Gas cooker etc.
5.6.2: Investment Scheme for Doctors: A good number or newly graduated doctors from Medical Colleges are unemployed. Many of the medical graduates are waiting for job because the opportunity for Government service is limited. If these young doctors could be self-employed by extending investment facilities, they could make modern facilities available at the door-steps of rural people. In view of the above facts, Islami Bank Bangladesh Limited has taken the initiative an introduced the " Doctors Investment Scheme" to ensure modern treatment and medical facilities available to the people through extension of Bank’s investment facilities for self-employment of newly graduated doctors and at the same time extending investment facilities to the established medical practitioners to procure modern and sophisticated medical equipment.
5.6.3: Small Business Investment Scheme: Bangladesh a third-wood developing country is rich in natural and human resources. In spite of vast possibilities, the majority people of the country live in hardship-below poverty tapped, explored and exploited. Physical labor is their only means of earning. A large segment of this populace is active youth force. Many of them are efficient, intelligent and energetic with initiative & drive and have courage to tale risks. But they can not uplift their socio-economic condition due to poverty, lack of financial support and other required facilities.
5.6.4: Housing Investment Scheme: One of the basic human needs is to have a house to live in. A house is in an abode of peace and happiness. Housing has now become an acute problem in the country, especially in the towns, cities and metropolis. With their limited income, it has become almost impossible on the part of the lower middle class, middle class and sometimes, even for upper middle class to solve their housing problem. To meet this basic human need, Islami Bank Bangladesh Limited is committed to contribute to this end to provide a peaceful and happy.
5.6.5: 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 programme 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. 5.6.6: Transport Investment Program: Under this scheme, investment in being allowed to the existing successful businessmen and potential entrepreneurs in this sector for all types of road and water transport with simple and easy terms and conditions. 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.
5.6.7: Car Investment Scheme: Car is considered as on essential mode of transport in the modern society, particularly by a section of the officials, business houses and business executives and established professionals for movement in discharging their duties and responsibilities punctually and efficiently. Many of these categories of people cannot purchase a car on payment of entire purchase value at a time out of their own sources. To meet this need Islami Bank has introduced the ‘Car Investment Scheme’ for the mid and high ranking officials of government and semi-government organizations, corporations; executives and directors of big business houses and companies arid also for persons of different professional groups on easy payment terms and conditions.
5.6.8: Rural Development Scheme of IBBL: Islami Bank Bangladesh limited (IBBL) envisages an economic system based on equity and justice. Taking into consideration that majority of the population below poverty line lives in rural Bangladesh, the Bank has devised a Rural Development Scheme (RDS) with a view to creating employment opportunity for them and alleviates their poverty through income generation activities. The IBBL through its RDS project has been implementing integrated programs for the landless poor, wage laborers and marginal farmers aimed at meeting their basic needs and promoting their comprehensive development. Consciousness among the poor needs should be enhanced so that they can lift their position in the socio-economic structure of the country. In order to consolidate their economic base, invested money should be used in income generating activities so the poorer section of the population can become self-reliant. RSD works for the realization of that objective.
5.6.9: Agricultural Implements Investment Scheme:
Bangladesh is predominantly an agricultural country with vast majority of people living in rural areas. Most of our people for their living are dependent on agriculture. Agriculture still contributes the lion share of the gross domestic product. But we could not as yet become selfsufficient in food production. We still import a bulk quantity of food grains from abroad to meet the deficit. We must modernize our agriculture and establish more and more industries in order to minimize imports. The Bank has introduced “Agriculture Implements Investment Scheme" to provide power tillers, power pumps, shallow tube wells, thrasher machine etc. On easy terms unemployed youths for self-employment and to the farmers help augment production in agricultural sector.
5.6.10: Micro Industries Investment Scheme: Islami Bank Bangladesh Ltd. has been appreciably participating in this direction by financing industrial sector. With a view to creating wider base for industries, the Bank has decided to launch "Micro Industries Investment Scheme" through its Branches.
5.7#Data Analysis of investment Mode
2006
2005
2004
Amount
Amount
Amount
Bai-Murabaha
59465.09
51822.28
41,731.48
HPSM
39399.19
30046.89
23,344.46
Bai-Muajjal
46921.40
5917.18
5,735.19
& 4846.62
3179.81
2,416.84
Quard
1974.20
1966.13
1,694.32
Bai-Salam
905.62
641.44
807.14
Mudaraba
50.00
50.00
102.00
Musharaka
12.95
20.42
27.13
Total
153575.07
93644.15
75,858.56
Purchase Negotiation
Table 1 Mode-wise Investment 5.7.1: Mode-wise Break-down Of Investment: 2004
%
2005
%
2006 %
•
Bai-Murabaha
42675 53% 51822 55% 65069
54%
•
HPSM
24066 30% 30046 32% 40984
34%
•
Baim
9379
12%
5917 6%
7457
6%
•
Others
4240
5%
5859 7%
6891
6%
Mode
2006
2005
2004
Amount
Amount
Amount
Industrial
62642.10
46063.51
35,593.03
Commercial
28983.8
29284.21
26,877.02
Real Estate
8357.80
6813.7
5,785.11
Transport
2722.4
2975.12
2,472.46
Agriculture
5890.00
6445.67
3,537.17
Others
4978.97
2061.94
1,593.77
Total
113575.07
220919.22
75,858.56
Table 2 Sector-wise Investment 5.7.2: Sector wise Breakdown of Investment: 2004 Industrial Commercial Real Estate Transport Agriculture Others
%
2005
%
2006
37411 47% 46063 49% 57486 48% 27933 35% 29284 31% 39789 33% 6435 8% 6813 7% 8357 7% 2381 3% 2975 3% 2720 2% 1900 2% 6445 7% 3412 3% 4297 5% 2061 3% 8637 7%
5.8# IBBL HAS EXTENDED FINANCE COVERING ALL SECTORS OF THE ECONOMY *** INVESTMENT PORTFOLIO AS ON 31 DEC 2006 *** SECTOR
AMOUNT IN MILLION
PER CENTAGE
TAKA
US DOLLAR
INDUSTRIAL
42666
675
45%
COMMERCIAL
33185
525
35%
REAL ESTATE
8533
135
9%
TRANSPORT
3793
60
4%
AGRICULTURE
3793
60
4%
OTHERS
2844
45
3%
TOTAL
94814
1,500
100%
Chapter Six Foreign Exchange 6.1#Foreign Exchange
%
Foreign Exchange Department is a very important department of IBBL, which deals with import, export and foreign remittances. Foreign Exchange department is an international department of the bank. It facilitates international trade through its various modes of services. It bridges between importers and exporters. If the branch is an authorized dealer in foreign exchange market, it can remit foreign exchange from local country to foreign country. This department mainly deals in foreign currency, that’s why it is called foreign exchange department. Bank branch should be authorized dealer, with due approval from Bangladesh Bank to run foreign exchange transactions. According to the Bangladesh Law, the payment must be received within 120 days. This department is playing an important role in enhancing export earning, which aids economic growth and in turn it helps for the economic development. On the other hand, it also helps to meet those goods and service which are more demandable and not adequate in our country. Foreign Exchange Department is dividend in to 3 sections.
Import
Export
Remittance
6.1.1: Mode of Foreign Exchange Business 1. Import 2. Export 3. Remittance A. Inward Remittance B.Outward Remittance 6.2# IMPORT 6.2.1: Meaning of Import: Import means lawfully carrying out of anything from one country to county for Buying. It will be occurred according to the Government la 6.2.2: Import Policy Order: Based on the needs of commodity and availability of finance, Government declares policy. For import of goods for a particular period having approval from the National Assembly is defined as Import policy order. Import policy is a guideline of a set of rules envisaged by Government
Authority i.e. the Ministry of Trade and commerce for the registered importer for import of goods inside the country. 6.2.3: Duration: Earlier import policy has been formulated the five years. But present import policy order has been formulated for 3 (three) years, Effect from the 14 th June 2003 to 30th June 2006 and valid till announce of new import policy order. If require Government can revise the policy in each every years. 6.2.4: General Rules in connection with import: 6.2.4.A: Restriction of Import: a) Negative list of Merchandises. b) Restricted list. c) Footnote under Restricted List d) Freely importable items. ITC number is compulsory (H.S code 6 digit) to be mentioned in the L/C and LCAF to identification the item to be imported. 1. Requirement Right of Refusal (ROR) for public sector agency from Ministry of Industry or respective Ministry/department of both to Import item under Restricted List. 2. Import cannot be Israel. 3. Pre-shipment inspection (PSI) for private sector normally PSI is not mandatory. 4. Shipment to be made through Bangladeshi ship some exemption a) Single importer maximum 20 MT grow importer highest 100 MT b) General waiver from department of shipping otherwise certificate of Waive is to be obtained to ship through Foreign Cargo c) Import of Raw materials export oriented Industries to be made on Competitive rate.
6.2.5: Regulations of Import: Import of goods under this policy shall be regulated as under: 1. Control list: Unless otherwise specified items which have been indicated as banned in this list shall no be permissible for import. An items included in this list with specific conditions for import shall be importable only on fulfillment of the conditions specified. 2. Freely Importable Items: Unless otherwise specified an items the name of which does not appear in the control list shall be freely importable.
3. Notwithstanding anything mentioned else where, all imports into Bangladesh shall be subject to such general or specific conditions as many have been prescribed in this order. 4. In addition to the conditions mentioned in the control list the conditions. Restrictions and procedures for import of various items mentioned in the test portion of this order, shall as usual, apply in case of import of those items 5. If, while determining the import status of an items mentioned in the control list the description of goods does not conform to the H.S Code mentioned against item, or any discrepancy arises between the H.S Code and the description of goods, in that case the description of goods shall prevail, In other words, if the import of a particular item is shown as banned in the control list, or is shown as importable as subject to fulfillment of conditions in the list, the said ban or restriction as the case may be, shall equally apply to the import of that item , even if such ban or restriction is mentioned else where and not against the appropriate H.S Code, if any importer, taking , advantage of such discrepancy, import any banned items or restricted items or restricted item without fulfilling the respective conditions, such import shall be treated to have been made as in contravention of the provisions of this order. 6.2.6: Modes Used in Foreign Exchange Investments • • •
Murabaha/ Bai Muazzal ---- Import/Export Bai- Salam -------------------- Reshipment Hire purchase----------------- For important Machinery under project Investment
No. Of Correspondents: Countries Bank Branches Nostro A/c Banks 72 235 850 41 25 6.2.7. The documentary letter of credit 6.2.7.A: Import L/C (Letter of Credit): Letter of Credit is a credit contract where the Opening/Issuing Bank is committed to place an agreed amount of money at the beneficiary’s disposal under some agreed conditions. In other words letters of credit is a letter form the importer Bankers to the exporter that the bills if drawn as per terms & conditions complied with will be honored on presentation. 6.2.7.A.1: Definition of L/C: A letter of Credit is a conditional bank undertaking of payment. In other words letters of credit is a letter form the importer bankers to the exporter that the bills if drawn as per terms and conditions are compiled with will be honored on presentation As per UCPDC 500 a credit may be either: i) Revocable. ii) Irrevocable.
The Credit, therefore, should clearly indicate whether it is revocable or irrevocable. In the absence or such indication the credit shall be deemed to be irrevocable. 6.2.7.A.2: Types of L/C: 1. Revocable Credit: As per Article no. 8 (a) A revocable credit is a credit which can be amended or canceled by the issuing bank at any time without prior notification to the seller since to offers little security to the seller. 2. Irrevocable Credit: As per Article no 9 an irrevocable credit constitutes a definite undertaking of the issuing Bank. A credit cannot be amended or cancelled without the agreement of all parties. It gives the seller grater assurance of payment. An irrevocable credit can be either confirms or unconfirmed dependant on the desire of the seller. 6.2.7.A.3: Classification of Importer: Importers are those who ate authorized by the import Trade authority i.e. & CCI & E for import of goods essential for consumption or for production purposes. There are mainly three types of importers. 1. Commercial Importer 2. Industrial Importer 3. Importers under Wage Earner Scheme 1. Commercial Importer: It means an importer registered under the importers, exporters and indention registration order 1981 who import goods from sale, when issued to commercial importers, given the category held by him with ITC classification and public notice against which they are admitted into import trade. 2. Industrial importers: When issued to an industrial consumer, gives the items of import as raw materials and packing materials and spare parts, the value of entitlement and ITC classification. 3. Importers under WES: It means registration importers who import only under the WES. In this scheme, the foreign exchange required for import of goods is met out of the remittance made. By Bangladeshi citizen earning wage abroad. WES importers can be importing all permissible items a declared by the importer also can import under WES. 6.2.7.B: Registration of Importer: As per import & Export control Act. 1950 no person can indent, import or export any goods into Bangladesh except kin case of exemption issued by the Government of the peoples Republic of Bangladesh. Violation of this order is punishable with fine under the provisions of Sea Customs Act 1878 as applied by sub section (3) of Section 3 of this Act. 6.2.7.B.1: Procedure for obtaining, IRC (Import Registration Certificate): Through public notice or import policy the chief controller of imports & Exports invites applications usually for registration of importers. The following papers/ documents are required for submission to CCI&E or area office of CCI & for import registration certificate:
1. Application form. 2. Nationality Certificate. 3. Income Tax registration Certificate with GIR. 4. Trade License from the municipal or local Authority. 5. Membership Certificate. 6. Partnership deed (for partnership firm) 7. Certificate of Registration with the register of joint Stock Co. & Articles and Memorandum of Association in case of Limited Co. 8. Bank Certificate. 9. Documentary evidence for business existence. 10. Original copy of Treasury Chalan being payment of registration fees. 11. Original copy Chaplin for passbook. 12. Other documents if any required by the CCI & E. 13. Ownership’s documents or Rent receipts of the place of Business. 14. Survey clearance from the relevant Authority. The nominated bank of the application will examine the papers/documents s& verity the signature of the applicant and forward the same to the concerned office of the CCI & E with forwarding schedule in duplicate through bank’s representative. The duplicate copy of the same bearing the acknowledgement of CCI & E office of the receipt of the documents is back by the bank and is preserved. If the documents are found in order and the CCI & E is satisfied the IRC is issued to the applicant and sent direct to the nominated bank. The passbook is also issued by the CCI & E simultaneously to the importer and sent direct to the nominated bank. 6.2.7.C: Some Important terms of Letter of Credit Amendment of Credit: Sometimes the importer may require amendment to be made in the L/C, but this amendment must be made with the consent of the exporter, otherwise amendment will have no validity. Adding Confirmation: Sometimes the exporter may not rely on the L/C issuing bank. Exporter requires the L/C to be confirmed by another bank situated in his country. Then on request of issuing bank, any bank in exporter’s country gives guarantee about the payment. This is called Confirming Bank. By adding such confirmation, confirming banks undertakes the liability to honor the Bill of Exchange of exporter. Validity and Expiry of Credit: All L/C must mention the expiry date of L/C within which the documents for payment/acceptance must be presented. This date must exceed the date of issuance of the bill of lading or other shipping documents, during which presentation of documents for payment/acceptance must be made. Free On Board (FOB): Under FOB basis, the exporter quotes the price covering all his expenses until the goods duty packed are delivered “on board”, the carrying vessel named and arranged by the buyer with the freight and the insurance being paid by the buyer. The importer bears any costs incurred and all risks from the time the goods are placed on board inclusive of those arising out of the ship’s failure on berth.
Cost and Freight (C & F): In this case the exporter quotes the FOB price plus insurance cost. The responsibilities of carrying out all formalities for shipment of the goods develop upon the seller. Cost, Insurance and Freight (CIF): Under CIF, the exporter quotes C&F price plus the insurance cost. The responsibility of carrying out all formalities for shipment of the goods develop upon the seller. Free alongside Ship (FAS): Under FAS, the seller quotes the price covering all his charges until such time as goods are loaded on train at the specified railway station. The buyer is responsible for all charges from the time he takes delivery of all goods from the exporter’s yard. EX-Factory: The seller quotes the price of the goods ex-factory on the date agrees. The importer is responsible for all further necessary arrangements and charges. 6.2.7.D: Parties to Letter of Credit 1. Importer (Buyer)/Applicant 2. The Issuing Bank (Opening Bank) 3. The Advising Bank (Notifying Bank) 4. Exporter/Seller (Beneficiary) 5. Confirming Bank 6. Negotiating Bank 7. The Paying/Reimbursing/Accepting/Remitting Bank Applicant: The person/body who requests the bank (opening bank) to issue letter of credit. As per instruction and on behalf of the applicant, the bank opens L/C in line with the terms and conditions of the seller contract between the buyer and the seller. Opening bank/Issuing Bank: The bank which open/issue letter of credit on behalf of the applicant/ importer. Issuing bank’s obligation is to make payment against presentation of documents drawn strictly as per terms of the L/C. Advising/Notifying Bank: The bank through which the L/C is advised/forward to the beneficiary (exporter). The responsibility of advising bank is to communicate the L.C to the beneficiary after checking the authenticity of the credit. It acts as an agent of the issuing bank without having any engagement on their part. Beneficiary: Beneficiary of the L/C is the party in whose favor the letter of credit is issued. Usually they are the seller or exporter. Confirming Bank: The bank which under instruction in the letter of credit adds confirmation of making payment in addition to the issuing bank. It is done at the request of the issuing bank having arrangement with them. This confirmation constitutes a definite undertaking on the part of confirming bank in addition to that of issuing bank. Reimbursing/Paying Bank: the bank nominated in the letter of credit by the issuing bank to make payments stipulated in the document, complying with reimbursing bank.
Beneficiary
1. Contract
Applicant
SELLER
BUYER
2. Doc .Credit Application 4. Advise of Doc .Credit
3. Documentary Credit
ADVISING BANK
ISSUING BANK
The Canadian Advising Bank
The Bangladeshi Issuing Bank
Figure 9: The Documentary Credit Cycle 6.2.7.E:: Documents submitted by the importer before opening of the L/C: a. b. c. d. e. f. g. h. i.
Trade License (Valid). Import Registration certificate (Must be kept in the bank custody). Passbook import. Income Tax declaration. Membership certificate. Memorandum of Articles (In case of Ltd. Co.) Registrar deed (In case of partnership firm) Resolution. Photo one copy.
Bank will supply the following papers/documents before opening of the L/C a) L/C application form. b) LCAF Form. c) IMP Form d) Murabaha agreement. e) Charge documents paper. The above paper must be completed duly filled and signed by the party and verified the signature. 6.2.7.F: Import Procedure under IBBL 1. Selection of Clients On the basis of
a. Credit Report. b. Credibility. c. CIB Report. (To association of liability if any with other bank.) 2. Induction of client as Importer. 3. L/C a. Conditional Undertakings of bank payments. b. .Processing to open C. Permissibility and marketability of the item. d. Price competitiveness. e. Credit report of the supplier. f. Fixation of the cash security. g. Documentation. h. Preparation of vouchers. i. Realizations of the cash security, commission and other charge. 4. Througing of L/C a. SWIFT is a worldwide community. It has over 7500 financial institution over 199 Countries as its member. b. Air mail/Telex through advising Bank. 5. Lodgement
6. Retirement
a. Checking of import documents upon receipt from negotiating or collecting banks. B.Entry the bills register. c. Passing the voucher. d. Purchase of FC. Fund for payment of the bills.
a. Preparation of cost memo. b. Intimation to importer regarding arrival of shipping document. c. Asking the bill paying bank’s dues showing in the cost memo. d. Delivery of the documents against receipt of payment endorsement. 7. Post Import Finance a. At the request of importer bank undertakes clearing of the imported goods paying duty. VAT and other relevant charges stores the same under control b. Delivers to importer against payment as per prior arrangement. 8. Enlistment of C&F agent a. For C&F purpose. C&F agents are enlisted under different categories. 9. Reprting a. To Bangladesh Bank b. Monthly returns statement to the Head office. The Plan of Payments by means of letter of Credit: The description of process
(1) The contract is concluded between the importer (buyer) and exporter (seller); (2) The buyer (importer) addresses in Serving Bank with the request to let out irrevocable the letter of credit (to open the letter of credit) according to conditions to the contract and transfers the sum of a covering under the letter of credit; (3) The bank of the buyer (importer) opens the required letter of credit and the BankCorrespondent asks to notify the supplier (exporter) on opening of the letter of credit; (4) Straight Bank (the Bank-correspondent of the Bank-Emitter) informs the supplier (exporter) on opening of the letter of credit; (5) The supplier (exporter) organizes transportation of the goods by means of the conclusion of the agreement with the transport or insurance company and receives the transport invoice or insurance policy. The supplier (exporter) gives, according to the contract, the following documents: Invoice, Air or railway invoice, Insurance policy, Packing sheet, - Certificate of quality - Others And other documents straitening to bank for payment under the documents. It is supposed, that all documents correspond to conditions of the letter of credit. In this case we proceed from the assumption, that straitening and executing bank is the same. (6) The Executing Bank checks all documents on conformity to the letter of credit and, if not it is found out of any divergences, the Bank pays the requirements of the Exporter. If the divergences are found out, executing the bank can work with one of the following ways: To send the documents for collection to Bank-Emitter, - To pay the documents after reception from the Exporter of the letter of guarantee, - To pay the documents after reception of the consent with divergences from the Bank-Emitter. (7) Executing the Bank sends the documents to the Bank-Emitter according to the conditions, stipulated by the letter of credit; (8) Executing the Bank sends the requirement about a covering (with the invoice of the addressee under the letter of credit) to Confirming Bank; (9) The Bank-Emitter notifies the Buyer (Importer) on arrival of the documents; (10) The Buyer (Importer) receives from the Bank-Emitter the documents; (11) The Buyer (Importer) gives the invoice of the transport company for reception of the goods; (12) After reception of the goods from the transport
6.2.7.H:Modes of sales of Goods 1. Cash in advance: Risk is low. The Proforma invoice is used 2. Open Account: Goods are sent first and payment is made afterwards. There are no intermediaries. Proforma invoice is used here as well. 3. Documentary Collection: Same as an open account but the use of bank as an intermediary. Here the risk is zero. Here the bank acts like an agent. 4. Documentary Credit: L/C Here modes 1, 2 and 3 are built on good faith and relationship, but mode 4 comes with a third party guarantor. 6.3# EXPORT 6.3.1: Meaning of Export: Export means lawful carrying out of anything from one country to another country for sale. 6.3.2: Definition of Exporter: The importers and exports trade of the country is regulated by the Imports Exports Control Act 1950. No person /firm is allowed to export any thing from Bangladesh unless he is registered with CCI and E under the registration order (Importer and Exporter) 1952. To become an exporter an ERC (export Registration Certificate) must be obtained from the office of CCI & E. 6.3.3: Procedure for obtaining Export Registration Certificate (ERC): For obtaining Export Registration Certificate (ERC), intending Bangladesh Exporters are required to apply to the CCI & E authority in the prescribed from along with the following documents: a) Nationality Certificate. b) Copy of valid Trade License. c) Income Tax Certificate. d) Bank Certificate. e) Copy of rent receipt of the business firm. f) Registered Partnership Deed in case of partnership concerns. g) Memorandum of Articles & Association and Incorporation certificate in Case of Limited Company. On satisfaction of the CCI & E the potential exporter is advised to deposit export registration fee of Tk. 1,000/- through Treasury Chelan to Bangladesh Bank/ Sonali Bank for enabling them to issue ERC. The ERC may be renewed every year on payment of renewal fee of Tk. 1,000/through Treasury Chelan as started. 6.3.4: Different types of Export: A. Export under L/C
Exporters are allowed to export the commodity under irrevocable letter of credit. Under this type of export, exporter will ship the goods as pr terms of the credit and will get payment as per arrangement of the credit. B. Consignment basis export: Exports are allowed against firm contract. As per contract, importer will ship the goods and the buyer will make payment after selling the consignment. C. Export against advancement paymen Sometimes exporter receives payment in advance. In that case Authorized Dealer should obtain a declaration from the exporter on the “Advance receipt voucher” certifying the purpose of the remittance. Then the exporter will export the goods against the advance payment. 6.3.5: General Rules for Export: There are some rules, which are mandatory for export of any goods form Bangladesh. The rules are as under: (1) No Person can export any goods from Bangladesh, unless he is duly registered as an exporter with the CCI & E. (2) All export must be declared on the EXP form, which is consisting of 4 copies. (3) Export mush is against any of the following: a) Export L/C. b) Firm Contract. c) Advance Payment. (4) Transport documents related to land route or sea and any other Author8ized Dealer. The Airway Bill and any other documents of title to car4go may be drawn to the order of a Bank in the country of import. However in case of advance payment, transport document may be drawn to the order of Foreign Importer Bank endorsement of transport documents is prohibited. Directions under Sl. No. shall not apply in the following cases: a) Export of Trade sample. b) Personal Effects. c) Goods shipped under the order of Govt. d) Export of fresh fish, vegetable and fruits. e) Gift package for less than Tk. 50/-. (5) ‘EXP’ must be submitted to the Bank by the exported and Bank will submit the Duplicate Copy to the Bangladesh Bank within 14 days from the date of shipment. (6) Payment for goods exported should be received through an authorized dealer in freely convertible currency.
(7) Export proceeds must be received by the exporters within 4 months. (8) Overdue export bills statement to Bangladesh Bank should be submitted by the 15 th of the month, following quarter to which it relates. (9) In case of short shipment, exporter should give a notice of short shipment of\n the prescribed from in duplicate, the prescribed from in duplicate, the customs, who will forward a Certified copy of the notice, to the Bangladesh Bank. 6.3.6: Issuance of EXP Forms and Number Bank will certify EXP Form only after confirming the following: a) Arrangements have been made for realization of Export proceeds. b) Bona-fides of the importer/ consignees abroad. c) Arrangements have been made for receipt by Authorized dealer of documents of title to goods. d) The EXP has been signed by the exporter 6.3.7: Stages & Mechanism of Export: 1) Exporter will make the goods ready for shipment. 2) Arrangements have to be taken for inspection of the goods by the competent authority as per credit terms. 3) Exporter will declare on EXP form against export L/C/Firm Contract/ Advance payment. 4) Exporter have to arrange approval for export from custom authority on EXP from by submitting Export L/C, Export permission from CCI & E, Quota clearance from EPB, U.D. in case of garments, invoice, packing list along with shipping bill prepared by C&F agent. 5) After completion of custom formalities, shipping company will receive the goods and will issue B.L. 6) Exporter will collect visa/ license and certificate of origin for final documentation. 7) Exporter will submit the full set of documents to the negotiating bank for negotiation. 8) Negotiation bank will dispatch the documents to the issuing bank for clearance of the goods from destination against payment as per credit terms. 6.3.8: Export Documents Checking: After submissions of export documents by the exporter, Bank must check, whether the entire required document submitted or not. Bank must examine all documents stipulated in the credit with reasonable care to ascertain whether or not they appear, on their face to be in compliance with the terms and conditions of the credit. The Banks will not examine documents not stipulated in the credit. To examine documents Bank must follow the L.C terms and international standard banking practice. Automated or computerized carbon copies to be treated as original documents if it is marked ‘original’ Copy documents need not be signed. Multiple documents means one original and remaining copies, Signature, Mark, Stamp or label is sufficient for authentication of document. Bank will accept a prohibited in the L/C.
6.3.9: Export Financing: s To meet up the cost of the goods to be exported, the exporter, the exporter may require Bank finance. Besides, he may require finance for go down rent, freight etc. Event after shipment of the goods, exporter may require Bank finance to meet-up his current expenditure up to repatriation of the export proceeds. There are two types of export finance: (I) Pre-shipment finance. (ii) Post shipment finance. 6.3.9.A: Pre-shipment finance: Pre-shipment investment is finance, allowed by a Bank to an exporter, to meet the cost up to the shipment of the goods t overseas buyer. The purpose of the investment is to purchase raw materials or finished goods or manufacturing processing, packing and transporting the goods. 6.3.9.B: Post shipment finance: There is a time gap between export of the goods and realization of the proceeds. So exporter may require finance in that period to continue his business. So Bank may finance against export documents ensuring the following: 1) Export documents comply the credit terms. 2) Buyer is bona-fide. 3) Party’s past performance is satisfactory. 4) Any other security in case of export under contract. 6.3.10: Issuance PRC: Sometimes exporters are required to submit to the Govt. Agency evidence of goods and realization of their proceeds. In such cases proceeds realization certificate (PRC) may be issued. Negotiation/ Purchase of Bill without L/C: In our country exports are also made on the basis of contract between the buyer and the seller with out the cover of L/C. In such case document are delivered to the buyer through the intermediary of foreign correspondent of the A.D against payment. Limit (post shipment finance) is usually sanctioned from Head Office to such exporters to boost up export of the Country. Document sent on Collection Basis: When the bank refuses to negotiate the document due to major discrepancies, the bill is sent by bank on collection basis under written instruction from the beneficiary. To handle such transaction as per ICC Publication No. 322 named “Uniform Rules for Collection”
EXP Requirement: All export from Bangladesh must be declared by the shipper on EXP form to the Bank enabling them to submit the duplicate within 14 days from the date of shipment. The shipper is required to repatriate the export proceeds within 4 months from the date of shipment otherwise penalty is imposed upon them. A careful watch is to be dept to ensure that the sale proceeds are received on due date. A due date diary must be maintained to pursue the individual case. 6.3.11: Shipping & Customs Formalities: International transfer of goods are made through the Letter of Credit which issued by the foreign bank at he request of Importers in favor of exporter. Such Export L/Cs is enrooted through the Bangladeshi Banks by the foreign banks who have correspondent relationship. The foreign issuing banks may advise a credit in the following manner: 1. 2. 3. 4.
By short cable/ Telex followed by Airmail. By full telex (No airmail confirmation). Airmail L/C. Advising of L/C after adding confirmation.
Keep the goods ready for dispatch (shipment): On receipt of the order from the importer, the exporter is to take immediate steps to manufacture the goods if they are not already in stock according to the specifications desired and keep them ready for dispatch. Inspection of Goods: The goods should be kept ready for inspection of the competent authorities and issue a certificate of quality control required under regulation: for example: 1. Export promotion Bureau. 2. Custom Authorities who will inspect the goods under Sea Customs Act. 3. Chamber of Commerce and Industry. 4. Other agencies authorized to inspect the goods before shipment. Getting shipping space: In order to export the goods, the shipping companies or their agent must be approached by the exporter for booking space, to know the freight etc. So that shipment may be made conveniently. In this regard, the services of clearing and forwarding agents may be taken conveniently for actual shipment of goods; commission etc. is also to be paid to the agents for this works. Get in touch with port Authorities: Who will have to allow the goods to move into the port and make arrangements for loading and unloading and keeping the goods in godown.
Shipment of Goods and other documents to C & F Agents:To handle the goods for export in the port of shipment banks nominate clearing agents to handle the goods to pass on custom formalities. Clearing agents are appointer by the bank from amongst the C & F agents of custom authority. The clearing agent on behalf of the bank arrange shipping space in the overseas vessel as per shippers instructions and also pays all the relevant dudes payable to the custom authority shipping company as freight. Bank or the shipper is to reimburse these to the C & F agent to the debit of party account. 6.3.12: Papers are requirement in regard to export of goods subject to L/C stipulation: 1. Commercial Invoice. 2. Certificate of origin. 3. Negotiable bill of lading. 4. Pre-shipment inspection certificate. 5. Quantity & quality certificate. 6. Fumigation certificate depending o the nature of cargo. 7. Phytosanitary certificate depending on the nature of cargo. 8. Gross revenue proceeds (GFP), export price check (EPC)/ Incase of jute shipment etc. 6.3.13: Export procedure under IBBL at a glance 1. Selection of Clients On the basis of a. Export Registration Certificate. (ERC) b. Membership of an authorized trade association. c. Credit report. d. Export L/C. e. Checking and Advising. f. EXP certification. g. Pre shipment facility. h. Processing for Export i. Execution j. Submission of Export documents. k. Checking: Preparation of offering sheets for negotiation or collection. 2. Negotiation and Collection. a. Purchasing documents. b. Sending documents to L/C opening banks or correspondent for collection of proceeds .After collection adjustment of negotiation value. 3. Reporting a. Duplicate EXP to Bangladesh Bank. b. Triplicate EXP after relation of proceeds to Bangladesh Bank. c. Monthly statement to Head office. 4. Export Under Back to Back System. a. Export L/C advising. B .Proposal for BB L/C
5. Throughing of BB L/C
c. Checking. d. Process to open BB L/C e. Formalities time gap between Import and Export credit. f. Report Buyer and Supplier.
a. Advising bank or Foreign correspondent add confirmation. 6. Lodgement of BB Bills a. Shipping documents. b. Evidencing dispatch. c. Goods acceptance of import bills. d. Conveying of due date to negotiating bank. e. Clearance of Raw materials. f. Storing in Bonded Warehouse. g. Manufacturing of the product. h. Pre shipment Extension. 7. Negotiation of Export Bill. a. Execution of Export b. Submission of Export Documents. c. Checking. d. Negotiation. e. Disbursement of funds to different heads of A/C including F/C held account for payment of BB Bill. 8. Relation of Proceeds and Reporting a. Crediting NOSTRO A/C. b. Adjustment of negotiation value. c. Payments of BB Bills. d. Export Incentives e. Reporting of Export. f. Settlement of any other claims 6.3.14: Back- to- Back L/C Back -to -back L/C means one credit backs another. It is new credit in favor of another beneficiary. Sometimes beneficiary seller of a credit himself is unable to supply goods specified in the L/C and required to purchase from another supplier by opening second credit. Besides, the formalities and requirements for (L/C opening) the following formalities and documents are also required for opening back-to-back L/C 1. Master L/C 2. Valid bonded ware house license 3. Quota allocation for quota items 4. ERC in addition to IRC 5. Indemnity/Undertaking 6. NO objection form previous banker 7. Factory inspection certificate 8. BGMEA Membership 6.3.14.1: Problems of Back to back L/C:
1.
Shipment time gap: Sometime time is shorted for exporting against import L/C, kit may be caused.
2.
Terms and rules violations: IBBL cannot violate the rules & term of Shariah council.
3.
Selling violation: Out of agreement IBBL cannot receive excess wanted.
4.
Payment of back to back L/C bill: No stock bills are supported against Shariah.
5.
Gaps of International rules & regulations.
6.3.14.2: Prospects of back to back L/C: L/C: 1.
It is Garment oriented readily.
2.
Backward lender (must have)
3.
to continuous quality improvement.
4.
To exchange customer facilities.
5.
To be continuous of our authorized
6.4# REMITTANCE 6.4.1: Meaning of Remittance: The word “Remittance” originates from the word “remit” which means to transmit money/ fund. In banking terminology the word “remittance means transfer of fund one place to another. When money transferred from one country to another is called “Foreign Remittance” 6.4.2: Types of Remittance: Foreign remittance may be classified into. • Inward Foreign Remittance. • Outward Foreign Remittance. 6.4.2.A: Inward Foreign Remittance: Inward Foreign Remittance means Remittance received from foreign countries from abroad. In other words remittance coming into our country from other countries by the remitter by way of permissible banking channel through freely convertible Foreign Currencies is called ‘Inward Foreign Remittance’ i.e. payless point of view it is inward foreign remittance. On the other hand remitter’s point of view it is called outward Foreign Remittance. During The year 1995-1996 Bangladesh received and amount of US$ 1217.062 Mil as Foreign remittance. The above process of Remittance may be presented diagrammatically as under: 6.4.2.B: Outward Remittance: Outward remittance of funds be made by means of T.T., D.D.T.T. etc. the remitter has to deposit money along with the application contains name and address of the payee name of the currency etc. All outward remittances must cover the transactions approved by the Bangladesh Bank. Which are usually for importers travel & educational expenses. 6.4.3: Direct/ Indirect Remitter: Wage Earners: Bangladeshi citizens are working abroad both in private sector & in Govt. Sector. Indenture:
Indenting commission & Agency commission received from suppliers from abroad. Bangladeshi citizens are working in Bangladesh Embassy abroad. Foreign Govt./ Govt. organization (UNO & others) who have their own activities in Bangladesh say business, Embassy etc. can also remit to Bangladesh for meting their expenses, salary etc., Donors: Foreign Donors can only remit to Bangladesh through the Govt. Register Organization & institution etc. Exporters: Export proceeds also remitted to Bangladesh against exporting of goods. 6.4.4: Mechanism of Remittance:
FCAD- Foreign currency A/C Dollar. FCAP- Foreign currency A/C Dollar. MFCD- Mudaraba foreign currency deposits. PFC- Private foreign currency. FCAD- Exp. - Foreign currency A/C dollar export. NRO- Non residence dollar. NRT- No residence Taka. PDAP- properly development A/C dollar. PDAP- properly development A/C pound.
6.4.5: Instruments of Foreign Remittances:
Cash for : Dollar, Pound, France Fr. Riyal or any other currency. T.C : Travelers Cheque. F.D.D : Foreign Demand Draft. T.T : Telegraphic Transfer, Cable transfer or swift transfer. M.T : Mail Transfer. I.M.O : International Money Order. Cheque : By any person & institution.. P.O : Payment Order.
6.4.6: Different types of F.C A/C: Foreign Currency A/c. Under wage Earners Scheme FCAD, FCAP & other. P.F.C A/c Private Foreign Currency A/c. N.F.C.D: Non resident foreign currency Deposit A/c. Exporters Retention Quota A/c. Education Foreign Currency A/c. C.T A/c. Convertible Taka A/c. & Non- Convertible Taka 6.5# PERFORMANCE EVALUATION 6.5.1: Foreign Exchange Performance of IBBL
Islami Bank Bangladesh Limited has glorious history in mobilizing Foreign Exchange Business. Over the years the bank’s Foreign Exchange Business was a record high amount among all banks in Bangladesh. The Bank has a wide Network of Authorized Dealers throughout the year. Well- equipped and international network with skilled manpower, the bank is confident of running Foreign Exchange business efficiently to the satisfactory of importers, exporters and Bangladeshi Expatriates working abroad. IBBL has a good network of correspondent banks around the world for its Foreign Exchange Business. The performances are given in the following pages. 6.5.1.A: YEARLY IMPORT Amount in Tk.million YEAR 2003 2004 2005
IMPORT AMOUNT 46,237 59,804 74,525 96,870 Source: International Wing, IBBL
2006
As above table show that, the Import amount in Tk. Million from 2003-2006.The import business witnessed a much better performance in 2006; the amount was Tk.74, 525 million. Before that the year amount was Tk.59, 804.And the year 2003 the amount was Tk.46, 237.So through out the year 2003-2006, the Import business is increasing. Total Im port Amount 150000 100000 50000
46237
74525
59804
96870
0 2003
2004
2005
2006
IMPORT
Figure: Import from 2003-2006 As above graph show that, the Import amount in Tk. Million from 2003-2006.The volume of export increase substantially by the Tk.46,237- 74,525 million 6.5.1.B: YEARLY EXPORT Amount in Tk.million YEAR
EXPORT AMOUNT
2003
21,738
2004
29,151
2005
36,169
2006
51,133 Source: International Wing, IBBL
The above table show that the yearly export amount from 2003-2006 by the Bangladeshi exporter. In 2003 the Export amount was Tk. Million 21,738. After the year 2004 this amount increased by almost 38%, amount in Tk. Million 29,151.The last year it also increased but the growth was 24% due to inflation, political unrest and rescission in world economy. Total Export Am ount 60,000 2003
40,000
2004 20,000
2005 2006
0 2003
2004
2005
2006
Figure: Export from 2003-2006 As above graph show that, the Export amount in Tk. Million from 2003-2006.The volume of export increase substantially by the Tk.21,738- 36,169 million. 6.5.1.C: YEARLY REMITTANCE YEAR
Amount in Tk.million
2003
REMITTACE AMOUNT 16,668
2004
23,669
2005
36,948
2006
53,819
Source: International Wing, IBBL As above the Table shows that, the remitted amount of IBBL in the million of Tk. From 20032006.As in the year 2003 the remitted amount from abroad amount was Tk. Million 16,668.In the 2004 the amount was increased figured Tk.23, 669 million, which also grater than the previous year. IN the 2005 the growth rate was too high than the previous two years, volume Tk.36, 948 million.
Total Remittance Amount
60,000 50,000 40,000 30,000 20,000 10,000 0
REMITTANCE AMOUNT
2003
2004
2005
2006
Figure: Remittance from 2003-2006 The Graph shows that there is an increase in the Remitted amount from abroad from20032006.The growth of the business is to stable and satisfactory. 6.5.2: FOREIGN EXCHANGE BUSINESS OF IBBL: Amount in Tk.million YEAR 2003
IMPORT 46,237
EXPORT 21,738
REMITTANCE 16,668
TOTAL 84,643
2004
59,804
29,151
23,669
112,624
2005
74,525
36,169
36,948
147,642
2006
96,870
51,133
53,819
201,822
Source: International Wing, IBBL As the above table shows that, the overall Import, Export and Remittance business of IBBL .From this table we can compare ,which business perform more ,also gather the idea about the turnover of the foreign exchange business. For better look, the following graph show the foreign exchange business for the past three years. Total F.Ex Business of IBBL
100000 80000 60000
IMPORT
40000
EXPORT REMITTANCE
20000 0 2003
2004
2005
2006
Figure: Total F.EX business from 2003-2006
The Graph snows that the foreign exchange business by IBBL is stable and the growth rate is nearly sustain. From above we saw that import is always high and the growth also high rather than the two type of business. 6.6#Swot Analysis STRENGTHS • • • • •
Stable Source of Funds Largest Portfolio Among PCBs Strong Liquidity Position Low Cost Fund Satisfactory Profitability
WEAKNESSES • • •
Marginal Capital Adequacy Lack of Strong Initiative to Explore Investment Opportunity Through Research & Marketing IT & E-Banking Status Does Not Match With Other Banks
OPPORTUNITIES • • •
Scope Of Whole Sale Banking with NBFIs Increasing awareness of Islamic Banking Credit Card Business
THREATS • • •
Increased Competition In The Market For Quality Assets Supply Gap Of Foreign Currency Overall Liquidity Crisis In Money Market
Chapter Seven Conclusions and Recommendations 7.1#Recommendation It goes without saying that IBBL has turned over a new leaf of general people through the invention of new products, which are easily introduced and accepted by the general people on account of its reliability and flexibility. Overall my observation we can say that customer service quality IBBL is good and continuously meets the challenges of developing new product and service.
IBBL is a well-known private and largest bank in Bangladesh. It is high time to improve the performance to provide the international flavored service by a Local bank. A set of recommendation is set forth below to improve the banking service: •
IBBL can diffuse its scope of investment through focusing Shariah concept regarding investments among the Bank officers; employer and the Clients by strong training, workshops and Clients get - together.
•
The authority of IBBL should exert pressure on Government bodies to run proper and sufficient application of Islamic banking laws in Bangladesh.
•
Practice amount of doubtful income declined substantially during the year as compared to the past few years, indicating more carefulness of the Management in complying with Shariah. As a result, idle money will be invested to increase potential profit of this Bank.
•
Inclusion of more subjects based on the Quran and Sunnah in the Training courses of the Islami Bank Training & Research Academy in order to develop human resources having morally.
•
This Bank should arrange a wide varieties of regular programs like "ISLAMIC JALSA" "OAAZ MAHFIL" "SEMINAR" "MOSQUE -BASED DISCUSSION" etc. about Islamic Banking Function countrywide to remove the negative impression about IBBL.
•
Arrangement of monthly /quarterly training courses /workshops for the clients selected by the Branches in order to promote Investment clients of the desired level.
•
IBBL should appoint a sufficient number of women employees to deal women entrepreneurs and professionals and understand their needs and thus create demand for investment.
•
To fulfill the vision of "mass banking" this Bank should grants investment portfolio to new entrepreneurs /new businessmen new companies etc.
•
IBBL should utilize "Internship Program" as one kind of promotion policy to encourage its present and potential investment clients. Because, young generation is the vital post of our economy. To do so this Bank should provides facilities to the internees through proper placement and practical operations as well as job certainty to those who bring introduce themselves the best performers in doing their particulars.
•
To gain success in the programs like "Poverty Alleviation and "Self Reliant" especially in rural areas, this bank should provides investment facilities on the basis of individual.
•
IBBL should appoint a Customer Relation Officer at branch level.
•
IBBL should make their credit approval and monitoring system more customers friendly.
•
IBBL should try to reduce their loan issuing and disbursement timing.
•
IBBL should increase their profit rate on different deposit scheme.
•
IBBL should try to attend different type of target customer.
•
IBBL should introduce long-term credit scheme like different types of 5 years or ten years credit scheme.
•
IBBL should Introduce Islami Credit Cards as soon as possible.
•
Maximum clients do not know about IBBL’s Loan schemes. They should carryout more promotional activities to make clients aware about their offers.
•
It was observed that, IBBL is absent in TV, Print Media, Bill Boards, and Sponsorships etc. Bank should advertise about itself so that it can attract more clients. That will increase the business volume of the bank.
•
To avoid bad debts IBBL should give more emphasize on Lending Risk Analysis (LRA) and try to conduct sensitivity analysis.
•
IBBL should give highest attention on recovery of Bad Debts. This concerns the Image of The Bank, to the clients
•
The Shariah council should give emphasis on introduction of Mudaraba and Musharaka modes of investment under various investment schemes including Rural Development Scheme.
7.2#Conclution Most of the people in our country have a bad impression about IBBL’s operations regarding indirect generation of interest, which means no difference between investments of IBBL loan/credit/advance of conventional banks for this reason. They are not much interested to investment with IBBL because majority of our people have no proper knowledge about the activities of Islami banking as well as its investment mechanisms. IBBL through its steady progress and continuous success has, by how, earned the reputation of being one of the leading private sector banks of the country. The bank has shown steady progress in this important sector. Main items of import are machinery, garments, fabrics and accessories, ships for scrapping, rice, pharmaceuticals etc. where as main items of exports are jute products, readymade garments, leather, frozen fish, fertilizer etc. IBBL’s capital adequacy, deposits, reserves, earning per share, export, import and remittances are increasing day by day. So, no doubt IBBL is a growing profitable financial institution. The future of Islamic banks hinges, by and large, on their ability to find a viable alternative to interest for financing all types of loans. They should recognize that their success in abolishing interest has been only partial and they have yet to go a long way in their search for a satisfactory alternative to interest. Simultaneously, Islamic banks need to improve their managerial capabilities by training their personnel in project appraisal, monitoring, evaluation and performance auditing. Moreover, the future of Islamic banks also depends on developing and putting into practice such accounting standards which provide timely and reliable information of the type that the Islamic banks would require for profit-sharing, rent-sharing or for cost-plus financing. These standards are yet to be developed. The Islamic banks would have to work hard to pursue their clients to accept these standards so that a reliable information base is established. 7.3# Bibliography Books 1. Chapra, M.U, (1995). Towards a Just Monetary System. Leicester: The Islamic Foundation. 2. Rahaman, A.A.M.Habibur. “Islami Banking”. 3. Kabir at el, Text Book on Islamic Banking, Islamic Economics Research Bearue, Dhaka, 2004. Class Notes (IBTRA) 1. Jebal Ahmed Asheque, Vice President & Faculty Member, IBTRA 2. Jb Md Rafiqul Islam, SVP & FM, IBTRA 3. Jb Kamal Uddin Jashim, AVP,IBBL Manual (IBBL)
1. Bai-Murabaha 2. Hire Purchase Under Shirkatul-Melk 3. Bai-Salam 4. Musharaka Web Site (IBBL) 1. http://www.islamibankbd.com 2. www.bangladeshbank.org.bd Others 1. Various types of publications of IBBL. 2. Annual reports of Islami Bank Bangladesh Ltd. for1999, 2000,2001,2002,2003 2004,2005&2007 3. Various lecture sheets of IBTRA.