Shariah Based Islami Banking System

The principle objective of this report is to analysis Shariah Based Islami Banking System, here focus on Islami Bank Bangladesh Limited. Other objectives are examine different banking activities compared with conventional banking system and cover a comprehensive analysis of foreign exchange operations of Islami Bank Bangladesh Limited. Report also focus on how IBBL has maintained growth in its banking business by maintaining and enhancing its relationship with its clients and analysis the performance of IBBL in every aspects.

 

Objective of the study

The basic objective is to fulfill the partial requirements of Bachelor of Business Administration. Some other objectives are:

  • To acquire practical knowledge about the overall activities if IBBL.
  • To examine different banking activities compared with conventional banking system.
  • To cover a comprehensive analysis of foreign exchange operations of Islami Bank Bangladesh
  • To study and understand the various services offered by this bank to its clients.
  • To study how IBBL has maintained growth in its banking business by maintaining and enhancing its relationship with its clients.
  • To know the performance of IBBL in every aspects.

Sources and methods of data collection

Both primary and secondary sources are used to collect necessary data. Primary sources include face-to-face interview with respective officers in general banking, investment and foreign exchange department. Secondary sources consist of several reading materials, such as journals, brochures and annual reports. I have not used any questionnaire to collect data.

Primary Sources:

  • Oral and informal interview of officers and employees in IBBL.
  • Informal interview with Importers/Exporters.

Secondary Sources:

  • Annual report of IBBL.
  • Official record.
  • Printed forms and documentation supplied by IBBL.
  • Booklets of international division of IBBL.
  • Central accounts department.
  • Relevant books, journals, booklets etc.

 

An Overview of Islami Bank Bangladesh Limited (IBBL)

Introduction

From the very beginning of commercial activities, business has been one of the key activities to generate income. The starting was with barter method and now a day up to service and information selling. To make it easier for the buyer and the seller banks have started their activities all over the world. A bank is an institution that borrows money from the surplus of the society and lends that money to the deficit unit for earning some interests. But Islam does not allow any Muslim to invest or earn money on the basis of interest (Riba). It is strictly forbidden by Allah according to Quran and Sunnah. So every sort of transaction must be free from Riba. But as a matter of fact all over the world it is a general practice and a featured service for the banks to compete. The subscribers also go for the banks providing more interests against their investments. In this scenario coming up with a new idea called “Shariah based banking system”, implementing the idea and surviving in this competitive commerce based world is really a brave approach.

Definition of Islamic Bank

An Islam 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.

According to the Organization of Islamic Conference (OIC), An Islamic Bank is a financial institution whose statutes, rules and regulations expressly state its commitment to the principles of Islamic Shariah and to the banning of the receipt and payment of interest on any of its operation.”

According to Dr. Ziauddin Ahmed, “Islamic Bank is essentially a normative concept and could be defined as conduct of banking in consonance with the ethos of the value system of Islam.”

According to Islamic Banking Act 1983 of Malaysia, An Islamic Bank is a company which carrying on Islamic Bank Business………Islamic Business means banking business whose aims and operations do not involve any element which is not approved by the religion of Islam.”

Characteristics of Islamic Bank

  • It is a financial institution.
  • It is a business institution.
  • It operates its business activities free from interest.
  • It is run according to rules and regulations formed and amended by Shariah Council.
  • Islamic bank means not business product but running business through money.
  • It is profit-loss sharing business organization.
  • It provides loan as Quard-e-Hashanah for social welfare.
  • It gives Zakat on its capital according to Islamic Sharia.
  • It leads all of its transaction according to Islamic law.
  • No form of work is done which is in Islamic etc.

Mission of the Bank

To establish Islamic Banking through the introduction of welfare oriented banking system and also ensure equity and justice in the field of all economic activities, achieve balanced growth and equitable development through diversified investment operations particularly in the priority sectors and less development areas of the country. To encourage socio-economic development and financial services to the low-income community, particularly in the rural areas.

Vision of the Bank

The vision of IBBL is to always strive to achieve superior financial performance, be considered a leading Islamic Bank by reputation and performance.

  • To establish and maintain the modern banking techniques, to ensure the soundness and development of the financial system based on Islamic principles and to become the strong and efficient organization with highly motivated professionals, working for the benefit of people, based upon accountability, transparency and integrity in order to ensure stability of financial system.
  • Try to encourage savings in the form if direct investment.
  • Try to encourage investment particularly in projects, which are more likely to lead to higher employment.

Necessity of Islami Bank

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 principles of profit and loss sharing, strictly avoiding interest, which is the root of all exploitation and is responsible for large-scale inflation and unemployment.Islamic bank is committed to do away with disparity and establish justice in the economy, trade, commerce and industry-build socio-economy infrastructure and create employment opportunity.

Objective of the Bank

  • To conduct interest-free banking system.
  • Ensuring justice to both suppliers of fund (depositors) and user of fund (investment takers).
  • Maintaining justice and equity at all level of transaction.
  • To develop a healthy capital and money market.
  • Alleviating poverty through profit sharing micro-finance.
  • To establish participatory banking instead of banking on debtor-creditor relationship.
  • To invest through different modes permitted under Islamic Shariah.
  • To accept deposits on profit-loss sharing basis.
  • To establish a welfare-oriented banking system.
  • To extend co-operation to the poor, helpless and low-income group for their economic development.
  • 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.

 

Islami Bank Bangladesh Starting (IBBL)

Islami Bank Bangladesh Limited was incorporated on 01.03.1983 and received its banking license on 28.03.1983. IBBL started functioning on 30.03.1983. The authorized capital of the bank is TK. 50.00 crores and paid up capital is TK. 32.00 crores.

Inspired by the success of IBBL five other Islamic banks namely Al-Baraka Bank, Social Investment Bank, Al-Arafa Islami Bank, Faisal Bank, and Exim Bank have established in Bangladesh. Prime Bank has established Islamic Branches.

 

Historical Background of IBBL

In August 1974, Bangladesh signed the Charter of Islamic development Bank and committed itself to reorganize its economic and financial systems as per Islamic Shariah. In January 1981, the president of Bangladesh, the then, while addressing the 3rd Islamic Summit Conference held at Mecca and Taif suggested, “The Islamic countries should develop a separate banking system of their own to facilitate their trade and commerce.”

This statement of the president indicated favorable attitude of the government of the People’s Republic of Bangladesh towards establishing Islamic banks and financial institutions in the country. Earlier in November 1982, Bangladesh Bank, the country’s central Bank, sent a representative to study the working of several Islamic Banks abroad.

In November 1982, a delegation of IDB visited Bangladesh and showed keen interest to participate in establishing a joint venture Islamic Bank in the private sector. They found a lot of work had already been done and Islamic banking was in a ready form for immediate introduction. Two professional bodies Islamic Economics Research Bureau (IERB) and Bangladesh Islamic Banker’s Association (BIBA) made significant contributions towards Introduction of Islamic banking in the country.

They came forward to provide training on Islamic banking to bankers and economists to fill up the vacuum of leadership for the future Islamic banks in Bangladesh. They also held seminars, symposia and workshops in Islamic economics and banking through out the country to mobilize public opinion in favor of Islamic banking.

Their professional activities were reinforced by a number of Muslim entrepreneurs working under the aegis of the then Muslim Businessmen in society (now reorganized as industrialist & Businessmen Association).The body concentrated mainly in mobilizing equity capital for the emerging Islamic Banks.

At last, the long drawn struggle, to establish an Islamic bank in Bangladesh becomes a reality. Islami Bank Bangladesh Limited was established in March 1983. In which 19 Bangladeshi nationals, 4 Bangladeshi institutions and 11 banks, financial institutions and government bodies of the middle east and Europe including IDB and eminent personalities of the Kingdom Saudi Arabia joined hands to make the dream a reality.

 

Corporate Information

  • Date of Incorporation :      13th March 1983
  • Inauguration of 1st Branch :      30th March 1983 (Local office, Dhaka)
  • Formal Inauguration :      12th August 1983
  • Share of Capital

Local Shareholders                       :    40.62%

Foreign Shareholders                          59.38%

  • Authorized Capital :        5,500.00 million
  • Paid-up Capital :                           2764.00 million
  • Deposit :                           132820 million
  • Investment :                            97178 million
  • Foreign Exchange Business :      147,642 million
  • Number of Branches :      169
  • Number of Shareholder :      17201
  • Manpower                      :   6020

 

Shariah Council (SC):

Shariah Council of the bank is playing a vital role in guiding and supervising the implantation and compliance of Islamic Shariah principles in all activities of the bank since its very inception. The council, which enjoys a high status in the structure of the bank, consists of prominent ulema, reputed banker, renowned lawyer and eminent economists.

Members of the Shariah Council meet frequently and deliberate on different issues confronting the bank on Shariah matters. They also conduct Shariah inspection of branches regularly so as to ensure that the Shariah principles are implemented and complied with meticulously by the branches of the bank.

 

Objectives of Shariah Council:

  • The functions of the council are to offer views and opinions on matters related to the bank from time to time. The council may require any paper document from the bank and examine the same to see whether it is according to see whether it is according to Islamic principles.
  • The Shariah council assists the Board of Directors by advising them on matters related to Shariah.
  • The opinion of the majority of members is taken as the opinion of the council provided that the said opinion is supported by at least three Muftis of the council.
  • The council maintains its secretariat and a well-equipped library as the Head Office of the bank where it keeps proper records of all of its proceedings and decisions.
  • The council elects a chairman and a secretary from amongst them. The chairman will normally preside over the meetings. In his absence the members present elect one of them to preside over the meetings.
  • The council may whenever it thinks necessary, constitutes a sub committee to help the council.
  • The council issues Shariah Certificate in the Annual Report of the bank.

 

 Conventional vs. Islamic 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 Islam on the other hand, considers a loan to be given or taken, free or charge to meet any contingency. For the interest of the readers, the distinguishing features of the conventional banking and Islamic banking are shown in terms of a box as shown below-

Conventional BanksIslamic Banks
1. The functions and operating modes of conventional banks are based on manmade principles.1. The functions and operating modes of Islamic baks are based on the principles of Islamic Shariah.
2. The investor is assured of a pre-fixed interest.2. It promotes risk sharing between depositors and the user of the funds.
3. It aims at maximizing profit without any restrictions.3. It also aims at maximizing profit under Shariah restrictions.
4. Lending money & getting it back with interest is the basic functions.4. Participation in partnership business is the basic functions of the Islamic banks.
5. It charges additional money in case of defaulters.5. It has no provision to charge any extra to the defaulters.
6. It gives more emphasizes on credit worthiness of the client.6. It gives emphasizes on the viability of the projects.
7. Here the relation to its clients is only debtors and creditors.7. Here the relation to the client is partner, investor & trader.

Table: Conventional vs. Islamic banking

 

IBBL’s World Rating

As per Banker’s Almanac (June 2007 edition) published by the Read Business Information. Windsor Court, England, IBBL’s world rank is 1490 among 4500 banks selected by them. 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 2007.

World ranking of IBBL amongst top 3000 international Banks-

Serial No.YearWorld Rating
119941447
219952314
319962303
419972262
519982119
619992100
720001999
820011902
920021771
1020031755
1120041581
1220051658
1320061620
1420071490

Table: IBBL’s World Rating

 

Functions of different departments of IBBL

Introduction

This internship program was in the job exposure and provided me with learning experience and knowledge in several areas. During the first few weeks of my internship period, I was able to get accustomed to the working environment of Islami Bank Bangladesh Limited. As the internship continued, I was not only accustomed to the activities and operations of correspondent Bank, but also gathered some knowledge about the basic business of banking in first one month of my internship period. Islami Bank Bangladesh Limited pursues decentralized management policies and gives adequate work freedom to the employees. This results in less pressure for the workers and acts as a motivational tool for them, also gives them encouragement and inspiration to move up the ladder of success. Overall, I have experienced a very friendly and supporting environment at Islami Bank Bangladesh Limited, which gave me the pleasure and satisfaction to be a part of them for a while.

Functions of Different Departments

While working in different departments of this branch I have found each and every employee is friendly to me to cooperate. They have discussed in details about their respective tasks. I also participated in their activities. I have learnt the Banking operations of three departments of IBBL:

  1. General Banking,
  2. Investment &
  3. Foreign Exchange.

Functions of General Banking Section

General banking is the most important part in banking services. The functions which are done under General Banking Department are as follows:

  1. Various Deposits.
  2. Local Remittances
  3. Collection and Clearing
  4. Cash Section
  5. Accounts Section

Various Deposits.

Islami Bank Bangladesh Limited gives special importance on savings. The objectives and principles of the savings policy of the bank are:

  • To encourage people to save for self and for the country as a whole.
  • To develop a sustained savings habit among the people.

To mobilize deposits through the operation of the following accounts :

  1. Al-Wadeeah Current Account
  2. Mudaraba Savings Account
  3. Mudaraba Term Deposit Receipt
  4. Mudaraba Special Notice Account
  5. Mudaraba Special Savings (Pension) Scheme
  6. Mudaraba Hajj Saving Scheme
  7. Mudaraba Savings Bond Scheme
  8. Mudaraba Foreign Currency Deposit (Savings) Scheme
  9. Mudaraba Monthly Profit Deposit Scheme
  10. Mudaraba Muhor Savings Deposit Scheme

Al-Wadeeah Current Account

The deposit is accepted in the AWCA under Al-Wadeeah principle of Islamic Shariah. The deposited money is invested along with other deposits by the Bank according to Islamic Shariah.  Here, the customer does not have any share in the profit.  The transaction can be made more than once during the banking hour. The terms and condition for opening an AWCA account are given below:

  • The account can only be opened with the introduction of any acceptable client/ current account holder of the Bank. In order to open Al-Wadeeah Current Account, a minimum amount of T 500/= is to be deposited and   the minimum balance with minimum amount of Govt. tax is to be maintained in the account. The Bank reserves the authority to return cheque, if otherwise.
  • Withdrawal may be made through the cheques supplied by the Bank. In that case all articles of Negotiable Instrument Act are applied.
  • Incidental charge @ Tk.50.00 half yearly basis is deducted from the account where minimum balance is not maintained. Closing charge @Tk.50.00 will be realised while closing the account
  • For the first cheque book, the customer has to apply   in a specified form (F-6) and then for new cheque book the customer shall have to apply through the requisition slip supplied with the previous cheque book.
  • The customer has to count the pages of the cheque book at the time of receiving the same. The book   should be maintained safely so that no cheque may be misused or stolen or destroyed. The Bank will not be responsible for any forgery if occurred by the stolen cheque(s).
  • The account holder shall have to use the specimen signature put in the Bank while withdraw money and in case of other correspondence with the Bank. In order to change the specimen signature put earlier the operator shall have to apply in writing before well in time.
  • The bank usually allots separate A/c. Nos. to different A/c. holders. The depositors have to mention name and No. of the account while fill-up the deposit slips for depositing the cash/cheque and obtain receipt duly signed by the authorised bank officials. The cheque to be deposited should be marked ‘Crossed’ i.e. A/c. Payee/ & co. etc. in the proper place of the cheque. If the deposited cheque(s) etc. is/are returned unpaid to the bank, charge/commission will be realised as per norms.
  • The Bank records the instruction of ‘Stop Payment` with care. But the Bank will not be held responsible if any fraudulent withdrawal is/are made through stopped cheque(s).
  • The Bank supplies statement of account every month.
  • The bank has right to deduct any account to realise necessary expenditure/postal charge. Moreover, any tax imposed by the Govt. will be deducted from the account.
  • The Bank preserves the right to close the account without showing any cause.
  • The changed address (if applicable) should be informed to the Branch immediately. The bank makes correspondence with the customer through postal services. The Bank will not be held responsible if any letter (cheque/bill) is not delivered in time or not delivered at all.
  • In case of joint account, if any of the A/c. holders expired the operation in the account will be stopped just after getting report and balance in that account will be paid as per norms to the heirs of the deceased and the alive A/c. holder(s); if there is any outstanding investment liabilities, the alive account holder/heirs of the deceased is/are bound to adjust the same.
  • The Bank consciously sums up the credit/debit of the account. If any amount is credited / debited through mistake, Bank can re-write the balance.
  • The unused cheque(s)   must be returned   to the Bank at the time of closing of the account.
  • The account holder(s) can select nominee’s) to receive the balance of the account in case of death of the account holder.

In case of death of the account holder, the nominee’s) has to submit the following papers/documents in support of his/their nomination to receive the balance of the concerned account:

  1. Death Certificate regarding death of the account holder.
  2. Certificate from 2 (two) valued clients of the Bank or 2 (two) officers of the Bank or the Chairman/Ward Commissioner of the Union Parishad/Municipality in support of the identification of the nominee’s).
  3. Attested Passport size photographs of the nominee’s).
  4. Indemnity Bond (C.F.-12) duly executed by the nominee’s) under sureties of 2 (two) valued clients each good for the amount and acceptable to the Bank.
  • The Bank reserves the authority to change, develop or reform/modify the rules of the account any time and the client is bound to abide by the same.

Mudaraba Savings Account 

Individual savings purposes open this type of account. Savings bank account also requires proper introduction. Deposits are made through deposit slips and withdrawals are made through printed cheques supplied while opening the account. No new account can be opened with cheque only but there must be some initial cash deposits. As per existing rules, a depositor can withdraw from his SB account not more than twice in a week to an

amount not exceeding 25% of the balance in the account, subject to a maximum Tk. 10,000 per week. This type of account earns profit on weighted rate. Profit on SB account

is calculated on minimum monthly balance and the profit so earn is credited to the account half yearly in June and December each year. If cash withdrawals are made violating the aforesaid prescribed limit, no profit is to be paid on such account for that month in which the default takes place. These SB account rules are subject to changes from time to live. Statement of account is to be dispatched to the account holder on quarterly basis or the customer may request for.

Mudaraba Term Deposit Receipt 

Such type of deposit is repayable after the expiry of a predetermined period fixed by the customer himself. The period varies from 3 months to 36 months. As usual, the prospective fixed deposit holder is expected to fill up an application form which contains the rules and regulations of the deposit .A banker does not insist upon a letter of introduction or reference for opening a fixed deposit account.

Mudaraba Special Notice Account 

At least Tk. 25,000/- is required to open such type of account. Profit on Mudaraba. Special notice deposit shall be credited to the account half yearly in June and December .No profit is to be charged if the balance stands less than Tk. 25,000. Individuals are permitted to deposit money in every working day. Withdrawals from this type of account require a prior notice of 7 days. It is also noted that IBBL are promised to invest this deposited money according to the Islami Shariah.

Mudaraba Special Savings (Pension) Scheme 

Islami Bank Bangladesh Limited, in keeping with its welfare-oriented ideals based on Shariah Principles, has developed a deposit pension scheme named “Mudaraba Special Savings (Pension) Scheme”, in order to mobilize and encourage the middle and lower middle class professional and service holders to save as per their capacity for their old age when they will normally retire from their active service life who otherwise do not like to keep and invest their savings and funds in interest bearing deposit pension schemes.. Thus a substantial amount of Savings/funds remain out of the production cycle.

The savings/funds of these people can play a vital role in capital formation and as a source of invisible fund for generation of income and increase of wealth of the individuals and of the nation. The scheme developed by Islami Bank Bangladesh Ltd. has already been accepted cordially by the lower and middle income group of people and thus it is expected to have great prospect in mobilization of small savings and funds for deployment in income and employment generating activities and business. In view of the above the Bank has introduced “Mudaraba Special Savings (Pension) Scheme”. Accounts under this scheme may be opened for monthly deposits of Tk. 100/-, Tk. 200/-,   Tk. 300/-, Tk. 400/-, Tk. 500/-, Tk. 1000/-, Tk. 1500/-, Tk. 2500/- and Tk. 5000/- only. The deposit will be received on Mudaraba Principle.

Mudaraba Hajj Saving Scheme 

Hajj is one of the fundamental worship (Ibadah) of Islam. However, because of the prevailing socio-economic situation in the country, the people interested to perform Hajj cannot arrange the required amount of money at a time to perform Hajj. The desire of many to perform Hajj is thus never fulfilled. Over twenty five thousand devoted Muslims from Bangladesh perform holy Hajj every year. Financial solvency and physical fitness are the pre-requisites of performing Hajj. The majority of the people, however, reach the fag end of their life in arranging the required amount of money for Hajj Islami Bank Account’.

Term (Year)

200120022003
Monthly Installment (Tk.)Monthly Installment (Tk.)Monthly Installment (Tk.)
25205210215
24220225230
23240245250
22260265270
21280285295
20305310315
19330335345
18355365375
17385395410
16420435445
15460475490
14505520535
13555570590
12610630650
11680700725
10760785810
9855885920
89751,0101,050
71,1251,1701,210
61,3251,3751,430
51,6001,6651,730
42,0002,1002,175
32,6752,8002,920
24,0004,2004,400
17,9508,3508,750

 Table: Year-Wise Monthly Installments of Persons Intend To Perform Hajj in 2001, 2002 And 2003

 

Mudaraba Savings Bond Scheme

Person(s) aged 18 years and above shall be eligible to purchase Mudaraba Savings Bond(s) in single name or in joint names. Educational institutions, Clubs, Associations

and other non-trading and non-profit socio-economic institutions shall also be eligible to purchase bonds in the name of the institutions. Guardians shall be allowed to purchase bonds jointly with a minor mentioning the age of the minor. Mudaraba Savings Bond shall be available in tk. 1000.00, tk. 5000.00, tk. 10000.00, tk. 25000.00, tk. 50000.00, tk. 100000.00 and tk. 500000.00 denominations. Terms: 5 years and 8 years.

Mudaraba Foreign Currency Deposit Scheme

Islami Bank Bangladesh Limited has introduced a new deposit product titled ‘Mudaraba Foreign Currency Deposit Scheme (Savings)’ under Mudaraba principle and endeavoring to invest the foreign currency funds in profitable way through its Foreign Correspondent Banks under Shariah Principle so as to enable the Bank to pay profit to its FC/PFC depositors, who will intend to open/maintain Mudaraba Foreign Currency Deposit (MFCD) Account particularly in US Dollar. This Scheme offers investment opportunities to wage earners and other private Foreign Currency Account holders who do not like to keep their funds in interest bearing deposit accounts or invest in interest bearing schemes. To encourage savings in Foreign Currency by offering a safe and profitable opportunity to the savers/investors by way of sharing a portion of the profit out of the investment of their funds as per principles of Shariah and to extend the Banks Deposit Scheme for mobilization of remittance of Bangladeshi expatriates to increase the opportunity for their income generation and increase in the wealth of individuals and of the nation through profitable investment as per Shariah principles are the special features of the Scheme.

Mudaraba Monthly Profit Deposit Scheme

There is a substantial demand of monthly profit paying long term deposit schemes among the retired service holders and wage earners residing abroad who want to help their dependants and relatives by contributing a certain amount of money on monthly basis from the profits of their one-time deposit with the bank. Again there are persons who want to meet the day to day expenses of their families out of the monthly profits that may be received on their long-term deposits. Trusts and Foundations who desire to offer monthly scholarship and stipends to the students from the monthly generated profits of their funds deposited on long term basis with banks and parents who want to bear the educational expenses of children from the monthly profits of their savings are also very much interested for such a monthly profit paying deposit scheme.Islami Bank Bangladesh Limited, as a pioneer of welfare banking, is receiving demands from the vast majority of our clientele and many other Shariah abiding people for introduction of attractive monthly profit based deposit schemes on the basis of Islamic Shariah so as to encourage them to meet their above needs out of the earnings of their deposits.

Mudaraba Muhor Savings Deposit Scheme

Savings play an important role in capital formation, income-generation and creation of employment opportunities and contribute towards the increase in wealth of the individual and nation through profitable investment. The people generally try to save a portion of their income with a view to protecting themselves from future financial hardship and also to enhance their earnings for their own benefit and the benefit of their family and the nation as a whole. The people of Bangladesh are deeply religious and committed to Islamic way of life and determined to conduct their economic activities in accordance with the tenets of Islamic Shariah. Islami Bank Bangladesh Limited, has therefore, introduced the savings deposit accounts viz. Mudaraba Savings Account, Mudaraba Term Deposit Account, Mudaraba Hajj Savings Account, Mudaraba Savings Bond, Mudaraba Special Savings (Pension) Scheme Mudaraba Monthly Profit Deposit Account, Mudaraba Foreign Currency Deposit (Savings) Account, Mudaraba Special Notice Account and Mudaraba Special Notice Account as per Islamic Shariah.Islami Bank Bangladesh Limited, being encouraged by the success of the Mudaraba deposit accounts has, therefore, introduced yet another savings scheme namely ‘Mudaraba Muhor Savings Scheme’.   Muhor is wealth, which a husband is to pay his wife, upon marriage. As per Islamic Shariah, it is compulsory for husband to pay this to his wife. But there are a good number of married men from all walks of life in our society who did not pay total Muhor

to their wives. Many of them are not aware about the necessity of payment of the deferred amount of Muhor so that wives have been remaining deprived of their fundamental right of Muhor. The wives are to forgive even the claim of the same. Although some of them are aware about it but they are not getting much opportunity to realize it from their husbands.

Amount of Monthly ContributionTermAmount Expected To Be Paid After Maturity
Tk.    500.005 (five) yearsTk.     38,518.00
Tk. 1,000.00-do-Tk.     77,036.00
Tk. 2,000.00-do-Tk.  1,54,072.00
Tk. 3,000.00-do-Tk.  2,31,108.00
Tk. 4,000.00-do-Tk.  3,08,144.00
Tk. 5,000.00-do-Tk.  3,85,180.00
Tk.    500.0010 (ten) yearsTk.  1,10,354.00
Tk. 1,000.00-do-Tk.  2,20,708.00
Tk. 2,000.00-do-Tk.  4,41,416.00
Tk. 3,000.00-do-Tk.  6,62,124.00
Tk. 4,000.00-do-Tk.  8,82,832.00
Tk. 5,000.00-do-Tk. 11,03,540.00

 Table: Deposit Value-Wise Approximate Amount Payable after Maturity

 Local Remittances

Cash remitting from one place to another is risky. So, Banks remit funds on behalf of the customer(s) to save them from any awkward happening through network of their branches. There are three modes of remitting funds. These are –

  1. Pay Order (PO)
  2. Demand Draft (DD)
  3. Telegraphic Transfer (TT)

 

 

Receiving Cheque For Collection

In Islami Bank Bangladesh Ltd. Limited, cheque of its customers is received for collection from other banks. In case of receiving cheque, following points should be checked very carefully-

  1. The check should not carry a date older than the receiving date for more than 6 months. In that case it will be a ‘Stale Check’. Again the check should not be a ‘Post dated’ one.
  2. The amount both in words and figures of the pay-in-slip should be the same and also it should be in conformity with the check’s amount both in figures and words.
  1. The name mentioned both in the check and the pay-in-slip should be the same.
  2. The check must be crossed.
  3. Collecting banker must check whether endorsement is done properly or not.

 Types Of Bills For Collection

  1. Outward Bills for Collection
  2. Inward Bills for Collection.

Outward Bills For Collection (OBC)

If the bill is beyond the clearing range then it is collected by OBC mechanism. Customer deposits cheque, drafts etc. for collection, attaching with their deposit slip. Instruments outside the clearing range are collected through OBC mechanism. A customer of Islami Bank Bangladesh Ltd. Mirpur Branch is depositing a check say of Janata Bank, Kotchandpur branch, Jhenidah. Now as a collecting bank, Mirpur Branch will perform the following tasks-

Procedure of OBC

  1. Depositing the cheque along with deposit-slip.
  2. Crossing of cheque are done indicating Mirpur Br. as a collecting bank.
  3. Endorsement “Payee’s A/C will be credited on realization” is given.
  4. Entries are given in the Outward Clearing Register.

Collecting bank can collect it either by its branch or by the drawer’s bank. They will forward the bill to that particular branch. OBC number will give on the forwarding letter. Now following procedures will take place in case of the following two cases.

 

The Process Of Collection Is Described BELOW:

If the bill is drawn on Islami Bank Bangladesh Ltd. Paltan Branch –

  1. Bills are sent to that branch through mail or courier;
  2. Branch collects the bills and sends an IBCA to that Branch;
  3. Depositor’s account is credited.

If the bill is drawn on another Bank and there is a branch of IBBL –

  1. Branch sends the bill direct to the branch of IBBL by OBC schedule.
  2. Request them to send the proceeds by IBCA and collect the bill.
  3. That branch of IBBL can collect the through clearing house arrangement exists there.

If the bill is drawn on another bank but there is no branch of IBBL

  1. Bill is directly sent to that Bank
  2. Request them to send a draft in favor of this bank by an OBC schedule.
  3. That bank sends a DD mentioning the Paying Bank
  4. Then the bill is collected through clearing house process.

 

 CLEARING

According to the Article 37(2) of Bangladesh Bank Order, 1972, the banks which are a member of the clearing house are called as Scheduled Banks. The scheduled banks clear the cheque drawn upon one another through the clearing house. This is an arrangement by the central bank where everyday the representative of the member banks sits to clear the cheque. For clearing there is a department in every Bank. This department receives cheques, drafts and like instruments from its customers for the purpose of collection with a deposit slip over the counter crediting their accounts. Clearing of cheque is done through the clearing house in Bangladesh Bank. Everyday the first hour starts at 10:00 a.m. and returns house at 5:00 p.m.

Types of Cheque For Clearing

  1. Inward Clearing Cheques
  2. Outward Clearing Cheques

 

Cash Section

Cash is the lifeblood of all financial activities. Cash section is a very sensitive point of the branch. This section deals with all types of negotiable instruments and it includes vault, used as the store of cash, instruments. The vault is insured up to Tk. 20 lac. Insured amount yet to be enhanced to Tk. 40 lac. Operation of this section begins when the banking hour starts. Cash officer begins his/her transaction with taking money from the vault, known as the opening cash balance. Vault is kept in a more secured place. The amount of opening cash balance is entered into a register. After whole days’ transaction, the surplus money remains in the cash counter is put back in the vault and known as the closing balance. If the cash stock goes beyond this limit, the excess cash is then transferred to Islami Bank Bangladesh Ltd. main branch. The main functions of this section are –

  • Cash Receipt
  • Cash Payment

Endorsement

Endorsement is done by putting signature of the drawer on the back of the negotiable instrument for the purpose of negotiation. By ‘blank endorsement’, an order instrument is made as ‘bearer’. Islami Bank Bangladesh Ltd. limited endorses the instrument in the following ways-

ENDORSEMENTIN CASE OF
Payee’s A/C creditedPay to Mr. X
Received payment

Payee’s A/C credited

Pay to Islami Bank Bangladesh Ltd., Mr. X
Payee’s A/C creditedPay to Mr. X , Islami Bank Bangladesh Ltd.

 

 Crossing

Generally two types of crossing are practiced, namely- General Crossing and Special Crossing. Basically it gives a direction to the paying bank not to pay the check amount over the counter. General crossing includes ‘A/C payee’ crossing only. Drawing two parallel and transverse lines do it. On the other hand, special crossing is like general crossing but in addition bank name is also mentioned. This gives the direction to the same to pay the check only to the banker, whose name appears in the crossing or to his agent.

Dishonor of Cheque

If the cheque is dishonored, Islami Bank Bangladesh Ltd. sends a memorandum (cheque return memo) to the customer stating the reason in the following way –

  • Refer to drawer.
  • Not arranged for.
  • Effects not cleared. May be presented again.
  • Exceeds arrangements.
  • Full cover not received.
  • Payment stopped by drawer.
  • Payee’s endorsement irregular/ require Bank’s confirmation.
  • Payee’s endorsement irregular/ illegible/ required.
  • Drawer’s signature differs/ required.
  • Alteration in date/ figures/ words requires drawer’s full signature.
  • Cheque is post dated/ out of date/ mutilated.
  • Amount in words and figures differs.
  • Crossed cheque must be presented through a bank.
  • Clearing stamp required/ requires cancellation.
  • Addition to Bank’s discharge should be authenticated.
  • Cheque crossed “Account Payee Only”
  • Collecting Bank’s discharge irregular/ required.

Note: If the check is dishonored due to insufficiency of funds, Islami Bank Bangladesh Ltd. charges Tk. 10/= as penalty.

 Accounts Section

Accounts department maintains all records of transactions and all types of statement. At the end of transaction hour all concerned section sends vouchers of transactions to this department. Accounts department compares all figures/ amount, contents of transactions with supplementary statement prepared by computer. If any discrepancy arises regarding any transaction then this department reports to the concerned department.

Following are the activities of accounts department:

  • To record all transaction in the cash book.
  • To prepare daily, weekly, monthly, half-yearly and yearly fund position.
  • To prepare all kinds of statements related to Bangladesh Bank, Head office and National Board of Revenue (NBR).
  • To prepare monthly salary statement, provident fund statement and administrative expenditure statement.
  • To make charges for different types of duty.

Functions of Investment Section

The special feature of the Investment policy of Islami Bank Bangladesh Limited is to invest on the basis of profit loss sharing system in accordance with the tenets and principles of Islamic Shariah. Earning of profit is not only the motive and objective of the bank’s investment policy rather emphasize is given in attaining social good and in creating employment opportunities.

The investment and credit department is very important department of a Bank. The money mobilized from ultimate surplus units are allocated through this department to the ultimate deficit unit (Borrower). The success of this department keeps a great influence over the profit of a bank. Failure of this department may lead the bank to huge losses or even to bankruptcy. So, special care should be given to this department.

Bank landing is important to the economy. Adequate finance can maintain a stable output. But as liquidity and profitability are conflicting considerations, IBBL, as a bank, while employing the funds pays due regard to both profitability and liquidity.

Investment and credit department receive application from clients in a prescribed application form supplied by the Islami Bank Bangladesh Limited. This application form contains detail about the borrowers such as names address of the borrowers/ directors/partners/proprietors, type and nature of the business, security offered, market of the borrower product, annual sales and production etc. The applicant must duly sign the application form. The branch officer after receiving the application form scrutinize the information provided in the form, collect additional financial information of the proposed firm, detail financial and other relevant information of sister concern, if any. After appraising the investment request and its securities the branch makes an investment proposal with detail information to the head office for approval. The officer in-charge and manager must sign this investment proposal as well. If head office approves the investment proposal, the branch prepares all documentation and make arrangement for investment disbursement Islami Bank (B.D) offer various types of investments.

At present IBBL has the following type of investment modes:

  1. Bai-Muajjal
  2. Bai-Murabaha
  3. Hire Purchase Under Shirkatul Melk
  4. Mudaraba
  5. Musharaka
  6. Bai-Salam

Bai-Muajjal

The terms “Bai” and “Muajjal” have been derived from two Arabic words. The word “Bai” means purchase and sale and the word “Muajjal” means a fixed time or a fixed period. “Bai‑Muajjal” means sale for which payment is made at a future fixed date or within a fixed period. In short, it is a sale on Credit.

Bai‑Muajjal may be defined as a contract between a buyer and a seller under which the seller sells certain specific goods (permissible under Islamic Shariah and the Law of the country), to the buyer at an agreed fixed price payable at a certain fixed future date in lump-sum or within a fixed period by fixed installments. The seller may also sell the goods purchased by him as per order and specification of the buyer.

Bai-Murabaha

The terms “Bai-Murabaha” have been derived from two Arabic words “Bai” and “Ribhun”. The word “Bai” means purchase and sale and the word “Ribhun” means an agreed upon profit. “Bai-Murabaha” means sale on agreed upon profit.

Bai-Murabaha may be defined as a 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.

Hire Purchase Under Shirkatul Melk

Hire Purchase under Shirkatul Melk is a Special type of contract which has been developed through practice. Actually, it is a synthesis of three contracts:

  • Shirkat
  • Ijarah
  • Sale

These may be defined as follows:

  • Shirkatul Melk

Shirkat means partnership. Shirkatul Melk means share in ownership. When two or more persons supply equity, purchase an asset, own the same jointly, and share the benefit as per agreement and bear the loss in proportion to their respective equity, the contract is called Shirkatul Melk contract.

  • Ijarah

The term Ijarah has been derived from the Arabic works (Air) and (Ujrat) which means consideration, return, wages or rent. This is really the exchange value or consideration, return, wages, rent of service of an asset. Ijarah has been defined as a contract between two parties, the Hire and Hirer where the Hirer enjoys or reaps a specific service or benefit against a specified consideration or rent from the asset owned by the Hire. It is a

hire agreement under which a certain asset is hired out by the Hire to a Hirer against fixed rent or rentals for a specified period.

  • Sale

This is a sale contract between a buyer and a seller under which the ownership of certain goods or asset is transferred by seller to the buyer against agreed upon price paid / to be paid by the buyer.

Thus, in Hire Purchase under Shirkatul Melk mode both the Bank and the Client supply equity in equal or unequal proportion for purchase of an asset like land, building, machinery, transports etc. Purchase the asset with that equity money, own the same jointly; share the benefit as per agreement and bear the loss in proportion to their respective equity. The share, part or portion of the asset owned by the Bank is hired out to the Client partner for a fixed rent per unit of time for a fixed period. Lastly the Bank sells and transfers the ownership of its share / part / portion to the Client against payment of price fixed for that part either gradually part by part or in lump sum within the hire period or after the expiry of the hire agreement.

 

 Mudaraba

It is a form of partnership where one party provides the funds while the other provides the expertise and management. The first party is called the Sahib-Al-Maal and the latter is referred to as the Mudaraba. Any profits accrued are shared between the two parties on a pre-agreed basis, while capital loss is exclusively borne by the partner providing the capital.

 Musharaka

An Islamic financial technique that adopts “equity sharing” as a means of financing projects. Thus, it embraces different types of profit and loss sharing partnership. The partners (entrepreneurs, bankers, etc.) share both capital and management of a project so that profits will be distributed among them as per ratios, where loss is shared according to ratios of their equity participation

 Bai-Salam

Under this mode Bank will execute purchase contract with the client and make payment against purchase of product, which is under process of production. Bai-Salam contract will be executed after making any investment showing price, quality, quantity, time, place and mode of delivery. The profit is to be negotiated. In this mode the payment as the price of the goods is made at the time of Agreement and the delivery of the goods is deferred

Selection Of Borrower

In lending, the most important step is the selection of the borrower. Due to the asymmetric information and moral hazard, banks have to suffer a lot due to the classified investments and advances, which weakens the financial soundness of the bank. If the selection of borrower is correct, that is, the borrower is of good character, capital and capacity or of reliability, resourceful and responsible; the bank can easily get the return from the lending. Consequently, monitoring is made much easier for the banker. From this point of view, IBBL follows the following procedures.

Studying Past Track RECORD: After getting an application for an investment, an IBBL Official studies the past track record of the applicant. Generally the study includes.-

  1. Account balances and the past transactions.
  2. Credit report from other banks.
  3. Information of the Industry by studying market feasibility.
  4. Financial statements (balance sheet, cash flow statement, and income statement).

Report from Credit Information Bureau of Bangladesh Bank if the amount is more than Tk. 10 lac.

Borrowers ANALYSIS: Borrower analysis is done from the angle of 3-C (character, capital, capacity) or 3-R (reliability, resourcefulness, responsibility). It follows that the bank forms a rational judgment about the integrity of the borrower, which should be undoubted. The human skill, conceptual skill, operational skill is qualitatively analyzed.

Business ANALYSIS: Business analysis is done from two angles-terms and conditions and collateral securities.

 

Sanction of Loan

On completion of Appraisal as provided here-in-above, if the proposal is found viable, issue Sanction Advice mentioning all the terms and conditions in duplicate to the Client and endorse copies to Head Offices retaining one copy in the Client’s file duly accepted by the Client.

If the Client duly accepts the Sanction terms and conditions, the particulars of the sanctioned proposal is allotted a Fixed Serial number for Client in the Limit Register as per limit Register which shall remain permanent irrespective of the Mode(s) so long as the limit remains valid and the Client continues business with the Bank.

A Client-wise file affixing the fixed number is allotted to him as per Limit Register and Client’s particulars be recorded prominently in the inner side of the Investment

In case of Investment to the existing Client, obtain required papers, documents/application with the past performance & outstanding liabilities of the Client, if any & process/sanction the proposal as per instruction lay down here-in-above after due evaluation/study.

 

Documentation

Documentation can be described as the process or technique of obtaining the relevant documents. In spite of the fact that banker lends credit to a borrower after inquiring about the character, capacity and capital of the borrower, he must obtain proper documents executed from the borrower to protect him against willful defaults. Moreover, when money is lent against some security of some assets, the document must be executed in order to give the banker a legal and binding charge against those assets. Documents contain the precise terms of granting investments and they serve as important evidence in the law courts if the circumstances so desire. That’s why all approval procedure and proper documentation shall be completed prior to the disbursement of the facilities.

Charge documents required by different types of advances are mentioned bellow:

  • Stock report
  • Trade license (Up-to-date)
  • Photograph proprietor/partner/directors (two copy each)
  • Income Tax clearance certificate /TIN certificate.
  • Declaration of liability position with other Banks (Up-to-date).
  • Particulars of assets of the firm /company.
  • Personal Assets of the proprietor/partners.
  • Statement of receivable and payable.
  • Partnership Deed (in case of partnership firm).
  • Credit Report.
  • Statement of profit calculation.
  • Banks statement for prior 12 months from previous Bank (for new customer).
  • Business plan.
  • Bio-Data of the proprietor/partner.
  • Rental Agreement (in case of rented premises).

 

Registered company related documents:

  • Certified copy of Memorandum & Articles of Association.
  • Certified copy of papers/ documents from Registrar of joint stock

Companies regarding allotment of share and change in the Director:

  • Photocopy of share certificate (Attested by the managing Director).
  • Certificate of incorporation.
  • Certificate of commencement (in case of public Limited Company).
  • Resolution in respect of availing investment facility from IBBL (Amount to be specified.
  • Bio-data of the Directors / Executive of key post.
  • Balance sheet for the last three consecutive years.

Security related documents (Land & buildings):

  • Original title deeds / Bai-deeds.
  • CS & RS parcha.
  • Mutation khatian with DCR.
  • Up-to-date rent receipt.
  • Non-Encumbrance certificate with SFR.
  • Valuation certificate.
  • Site map.
  • Mouza map.

 Purchase Of Goods By The Bank

Bai-Murabaha is perfectly a legitimate transaction according to the Shariah, provided:

  • The Bank transforms its money into goods.
  • That after purchase of goods the risk of the goods is borne by the Bank until the possession of the Merchandise has been passed on the Client.
  • That the specification of goods, deliveries date, time and place and other terms of contract are ensured.

Any deviation from the above first two conditions will deteriorate the transaction into purely financing arrangements with the agreed profit, which will be nothing more than a camouflage for interest.

 

Taking Delivery Of Goods By The Bank

After finalization of purchase of Bai-Murabaha goods either by the Bank Officials or through any Agent from the local or outstanding market, the Bank shall request the seller to deliver the goods purchased to the Bank’s Authorized Official/Agent/Representative/ Client acknowledgement.

After taking delivery of the goods by the Bank or through an Agent, the Bank shall make payment of the price of the goods.

The Bank does not 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 the Allotted.

Sale And Delivery Of Goods To The Client

The Bank, after receiving the goods, calculate the total cost price and fix-up the mark-up profit mutually agreed upon and determine the total sale price mentioning the total cost and marked-up profit separately which will include the following:

  • Profit Rate – Floor Rate in different sectors & modes may fix and Branches may be permitted to bargain & negotiate profit rate at a rate above the Floor rate.
  • Fix up the schedule of payment.
  • Execute the Bai-Murabaha Agreement with Client.
  • Deliver the goods purchased by the Bank to the Client.

As per agreement to Pledge the goods with the Bank the Client shall sign the Pledged Deed and the goods will be kept by the Bank on Pledge. The Bank may, however, deliver the Pledged goods to the Client against Trust Receipt.

Follow-Up, Supervision, Recovery And Adjustment

To proper follow-up, supervision, recovery & adjustment bankers are filing client-wise with the Copies of Application, Appraisal Report, Sanction Advice and other Documents and Papers viz. Trade License, Income Tax Payment Certificate, Partnership Deed/Memorandum and Articles of Association etc. submitted by the Client with the Original Application. Copy of all correspondences made and reply received thereto is chronologically preserved in this file. The pages of the File shall be serially numbered and it is chronologically preserved under the joint custody of the Incumbent-in-charge of the Branch and the Officer-in-charge of Investment department. They will ensure adjustment of the Investment by the Client as per payment schedule.

  • Maintain due date Diary and the due date Adjustment of payment of Investment.
  • Regularly collect Market Price of all goods supplied to the Clients. Scrutinize and Analyze Price trends in the Market.
  • Visit the Shops and Business Establishments of the Client regularly and ascertain his present business position.
  • Profit and Loss Account and Balance Sheet of the Client’s business should be obtained periodically to ascertain state of affairs of the Business.
  • If any Investment is secured Personal Guarantee of any third party, the Guarantor should also be brought under constant and effective follow-up.
  • Realize the Bank dues on or before due date
  • Do not allow Investment to become overdue in any way.

If, any Investment becomes Overdue, all persuasive measures must be taken to recorder the outstanding amount immediately. The Client will be served with a Final Notice to make full payment of dues within 15 (fifteen) days from the date of Notice.

 

 Invest Income:

Investment income of Tk 1109 crore during the year 2006 as against target of Tk 1140 crore. They have achieved 97% of target amount with 34% growth in 2006, which was 93% with 21.5% growth in 2005. This can show by the following graph & figures at a glance:

Year Investment Income
2001348
2002433
2003578
2004680
2005826
20061109

 

Name of Scheme20012002200320042005
Rural development Scheme371.10432.04570.88789.971106.47
Household durables scheme865.90886.79910.91878.76782.09
Investment scheme for Doctors95.1097.21101.0185.5464.42
Transport investment Scheme1147.501822.382311.602442.162947.38
Car investment scheme27.4028.2533.5830.3027.75
Small Business investment scheme244.10325.06395.75501.26629.81
Micro Industries Investment Scheme6.306.6310.1017.7810.21
Agricultural Implements investment scheme18.8013.6612.7614.6912.53
Housing investment scheme499.50597.64661.56672.10609.78
Real Estate investment scheme1641.702264.353418.854713.705859.75
Total Investment35237.7646280.1159007.4975858.5693644.15
% to total investment13.95%13.99%14.28%13.37%12.87%

Table: Outstanding amount of investment as at the year end under different schemes are as under: (Amount in million)

SectorClientsOutstanding
Crop Production1509785931439
Vegetables, Gardening & nursery361725052145
Irrigation & Agriculture Equipment452837713666
Animal Husbandry33365219311481
Poultry & Duckery503331729045
Fisheries572637768016
Rural Transport1582188759686
Rural Housing785762407428
Off-farm activities-General70156450812657
Micro Enterprise291666984437

 

Sector20052004
Industrial46063.5135593.03
Commercial29284.2126877.02
Real estate6813.705785.11
Transport2975.122472.46
Agriculture6445.673537.17
Others2061.941593.77
Total93644.1575858.56

 

Mode20052004
Bai-Murabaha5182241731
Hire Purchase under Shirkatul Melk30046.8923344.46
Bai- Muajjal5917.185735.19
Purchase & Negotiation3179.812416.84
Quard1966.031694.32
Bai-Salam641.11807.14
Mudaraba50.00102.00
Musharaka20.4227.13
Total93644.1575858.56

 

Functions of Foreign Exchange Section

Foreign Exchange means foreign currency and it includes any instrument drawn, accepted, made or issued under clause (13), Article 16 of the Bangladesh Bank Order, 1972. All deposits, credits and balances payable in any foreign currency and draft, travelers cheque, letter of credit and bill of exchange expressed or drawn in Bangladeshi currency but payable in any foreign currencies. Bangladesh Bank issues Authorized Dealer (AD) license by observing the bank’s performance and also the customers associated with the bank for conducting foreign dealings. So, Islami Bank Bangladesh Ltd. MIRPUR No-10 Branch is an authorized dealer.

Total Foreign Exchange Business of IBBL

Over the last 10 years, the Bank has made a exemplary progress in handling foreign trade and foreign exchange business. The total foreign exchange business stood at Taka 20182.00 crore as against target of Taka 21600.00 crore. Achievement is 93.44% with growth rate 36.70% over the year 2005 they comparing to the last 5 years, they achieved highest of foreign exchange business in the year 2006.

To handle foreign exchange business effectively and efficiently, the Bank has, over the years, developed a wide network of correspondents throughout the world. The Bank has correspondent relationship with 900 branches of 250 foreign Banks and exchange houses in 90 countries as on 31.12.2006. It is one of the top three thousand international banks of the world and its world-rank is 1200 in 2006.

YearImportExportRemittanceTotal  Foreign Exchange BusinessGrowth Rate
199617874.8011766.403328.3032969.50-5%
199717370.0014469.404806.0036645.4011%
199820238.3014894.306360.6041493.2013%
199920396.0014798.008415.0043609.005%
200025327.0016889.007644.0049860.0014%
200125907.0016080.009879.0051868.004%
20023379.001667.001467.006513.00
20034624217416678464
200459802915236711282
200574533617369514764
200696875113538220182

 Table: Foreign Exchange BUSINESS (Taka in Crore)

 

Types of Foreign Exchange Business:

The achievement of Islami Bank in the area of foreign exchange business has been quite phenomenal. The Bank has been providing services to import and export trade and for repatriation of hard-earned foreign exchange of Bangladeshis living and working abroad and has, by now, consolidated its position in these areas. The foreign trade handled by the bank may be classified as under:

 

IMPORT:

Import business stands at Tk 9687 crore during 2006 as against target of 10800 crore. Achievement is 89.69% with 29.97% growth rate. Import business in last year was not up to the mark. The prospect of Import Business in our country is hopeful. So they develop there business according to this. Import business of last 5 or 6 years sown this thing very impressively which we can show also:

YearAmount (Tk Crore)
20012591
20023379
20034624
20045980
20057453
20069687

 

Import Mechanism

To import, a person should be competent to be an ‘Importer’. According to Import and Export Control Act, 1950 the Office of Chief Controller of Import and Export provides the registration (IRC) to the importer. After obtaining this, the person has to secure a letter of credit authorization (LCA) from Bangladesh Bank. And then a person becomes a qualified importer. He is the person who requests or instructs the opening bank to open an L/C. He is also called opener or applicant of the credit.

 

Letter Of Credit (L/C)

Letter of Credit (L/C) is a payment guarantee to the seller by the buyer’s bank. It is in fact, a Credit Contract whereby the buyer’s bank is committed (on behalf of the buyer) to place an agreed amount of money at the seller’s disposal under some agreed conditions. If the conditions of the credit do not require for presentation of specified documents, it is called Clean Credit. On the contrary, if the presentation of specified documents is obligatory, the credit is called a Documentary Credit.

Buyers and sellers enter into contracts for buying and selling goods/ services and the buyer instructs his bank to issue L/C in favour of the seller. Here bank assumes fiduciary function between the buyer and seller.

Types Of L/C

Islami Bank Bangladesh Ltd. Paltan Branch deals with two types of L/C. These are –

  1. Sight L/C
  2. Deferred L/C.

 

Parties To Letter Of Credit

The following parties are involved to a letter of credit, namely –

Obligatory Parties are

  • Importer/ Buyer/ Applicant
  • Opening Bank/ Issuing bank
  • Advising Bank/ Notifying Bank
  • Exporter/ Seller/ Beneficiary

Optional Parties (In case of need) are

  • Negotiating Bank
  • Confirming Bank
  • Paying/ Reimbursing bank

 

Import Procedure

An importer is required to have the following formalities to import the goods through Islami Bank Bangladesh Ltd. –

  • An account with Islami Bank Bangladesh Ltd Mirpur Branch
  • Import Registration Certificate (IRC)
  • Tax Paying Identification (TIN) Number
  • Proforma Invoice/ Indent
  • Membership Certificate
  • LCA (Letter of Credit Application) form duly attested
  • One set of IMP Form
  • Insurance Cover note with money receipt
  • Others

Importer’s Application For L/C Limit

To have an import L/C limit, an importer submits an application to the Foreign Exchange wing of Islami Bank Bangladesh Ltd. Mirpur Branch furnishing the followings-

  1. Full particulars of bank account
  2. Nature of business
  3. Required amount of limit
  4. Payment terms and conditions
  5. Goods to be imported
  6. Offered security

A credit Officer scrutinizes this application and accordingly prepares a proposal (CLP) and forwards it to the Head Office Credit Committee (HOCC). The Committee, if satisfied, sanctions the limit and returns back to the branch. Thus the importer is entitled for the limit.

L/C Application

IBBL provides a printed form for opening a L/C to the importer. A special adhesive stamp is affixed on the form.  While opening, the stamp is cancelled. Usually the importer expresses his desire to open a L/C quoting the amount of margin in percentage. The importer gives the following details-

  • Full name and address of the applicant.
  • Date and place of expiry of the credit
  • Applicant’s A/C number
  • Amount (both in figure and word)
  • The mode of transmission of document (SWIFT/ Courier/ Telex)
  • Confirmation of credit to the beneficiary (requested or not requested)
  • Partial shipment is allowed or not
  • The type of loading (loading on board)
  • Brief description of the goods to be imported with HS code no.
  • Credit available with by sight payment/ by acceptance/ by negotiation/ by deferred payment at against the documents detailed herein/ and beneficiaries draft at on.
  • The time bar within which the document should be presented.
  • Sales terms (FOB/ C &F/ CIF)
  • Shipping Mark
  • IRC Number and LCA Number
  • Insurance cover note with money receipt
  • Country of origin

Additional Instructions are like-

  1. Shipment by South African, Taiwanese, and Israeli flag vessels/ carriers or any vessel/ carrier calling at any port of South Africa and Israel is prohibited.
  2. Radiation certificate is required in case of food items.
  3. All charge outside Bangladesh is of account of (importer/ beneficiary).

The above information is provided along with the following documents-

  1. Proforma Invoice/ Indent stating the description of the goods including quantity, unit price, etc.
  2. Insurance cover notes with money receipt, name and address of issuing company and the policy number.
  3. Four set of IMP (Import) Form

Accounting Procedure In Case Of L/C Opening

When the officer thinks fit the application to open a L/C, giving the following entries- creates the following charges-

ParticularsDebit/ CreditCharges in Taka
Customer’s A/CDebit
L/C Margin A/CCreditCommonly 10-30%
Commission A/C on L/CCredit0.5%
VATCredit15% on commission
SWIFT ChargeCreditTk. 2,500/=
Foreign Courier Charge (FCC)CreditUS$ 25/=
StampCreditTk. 320/=
OthersCreditTk. 300/=

Table-: Showing Accounting Treatment at the Time of L/C Opening

Payment Procedure Of Import Documents

This is the most sensitive task of the Import Department. The officials have to be very much careful while making payment. This task constitutes the following-

  1. Date Of Payment: Usually payment is made within seven days after the documents have been received. If the payment is become deferred, the negotiating bank may claim Profit for making delay.
  2. Preparing Sale Memo: A sale memo is made at B.C rate to the customer. As the T.T & O.D rate is paid to the ID, the difference between these two rates is exchange trading. Finally, an Inter Branch Exchange Trading Credit Advice is sent to ID.
  3. Requisition For The Foreign CURRENCY: For arranging necessary fund for payment, a requisition is sent to the International Department.
  4. Transmission Of Message: Message is transmitted to the correspondent bank ensuring that payment is being made.

 

Export Section

Foreign Exchange Regulation Act, 1947 nobody can export by post and otherwise than by post any goods either directly or indirectly to any place outside Bangladesh, unless a declaration is furnished by the exporter to the collector of customs or to such other person as the Bangladesh Bank (BB) may specify in this behalf that foreign exchange representing the full export value of the goods has been or will be disposed of in a manner and within a period specified by BB.

Back-To-Back Letter Of Credit

Back-to-back L/C is a secondary L/C (New Import L/C) opened by the seller’s bank based on the original L/C (Master L/C) to purchase the raw materials and accessories for manufacturing of the export product (s) required by the seller. Under the ‘Back to Back’ concept, the seller as the Beneficiary of the master L/C offer it as a ‘security’ to the advising Bank for the issuance of the second L/C. The beneficiary of the Back-to-Back L/C may be located inside or outside the original beneficiary’s country. In case of a Back-to-Back L/C, the bank takes no cash security (margin). Bank liens the Master L/C and the drawn bill are a Usance/ Time bill.

 

Payment Of Back-To-Back L/C

Payment of Back To Back L/C

On 30/ 60/ 90/ 120/ 180 days of maturity period, deferred payment is made. Payment is given after realizing export proceeds from the L/C Issuing Bank. For Garments Sector, the duration can be maximum 180 days. In case of export failure or non realization/ short realization of export proceeds, forced Investment i.e. OAP has to be created in order to settle the Back to Back L/C payment.

Export Letter Of Credit

The other type of L/C facility offered by Dilkusha Corporate Branch is Export L/C. banglade4sh exports a large quantity of goods and services to foreign households. Readymade textile garments (both knitted and wove), jute, jute-made products, frozen shrimps, tea are the main goods that Bangladeshi exporters exports to foreign countries. Garments Sector is the largest sector that exports the lion share of the country’s export. Bangladesh exports most of its readymade garments products to USA and European Community (EC) countries. Bangladesh exports about 40 % of its readymade garments products to USA. Most of the exporters who export through Dilkusha Corporate Branch are readymade garment exporters. They open L/Cs in this branch to export their goods, which they open against the import L/Cs opened by their foreign importers.

Formalities Required For Export L/C

The export trade of the country is regulated by the Imports & Exports (Control) Act, 1950. There are a number of formalities that an exporter has to fulfill before and after shipment of goods. These formalities or procedures are enumerated as follows –

Export Registration Certificate (ERC): The exports from Bangladesh are subject to export trade control exercised by the Ministry of Commerce through Chief Controller of Imports & Exports (CCI&E). No exporter is allowed to export any commodity permissible for export from Bangladesh unless he is registered with CCI&E and holds valid ERC. The ERC is required to be renewed every year. The ERC number is to be incorporated on EXP (Export) Forms and others documents connected with exports.

The EXP FORM: After having the registration, the exporter applies to Islami Bank Bangladesh Ltd. Mirpur Branch with the Trade License, ERC and the Certificate from the concerned Government Organization to get the EXP Form. If the branch is satisfied, an EXP Form is issued to the exporter. An EXP Form usually contains the following particulars –

  • Name and address of the Authorized Dealer;
  • Particulars of the commodity to be exported with particulars and code no;
  • Country of destination;
  • Port of destination;
  • Quantity;
  • L/C value in foreign currency;
  • Terms of sale;
  • Name and address of Importer/ Consignee;
  • Bill of Lading/Railway Receipt/Airway Bill/Truck Receipt/Post Parcel Receipt no. and date;
  • Port of Shipment/Post Office of Dispatch;
  • Land Custom Post;
  • Shipment Date;
  • Name of the Exporter with address;
  • CCI&E’s registration number and date;
  • Sector (public or private) under which the exporter fails.

Securing The Order : Upon registration, the exporter may proceed to secure the export order. This can be done by contracting the buyers directly through correspondence.

Signing Of The Contract : While making a contract, the following points are to be mentioned: a) Description of the goods; b)  Quantity of the commodity;  c)  Price of the commodity;  d)  Shipment;  e)  Insurance and marks;  f)  Inspection, and g)

Procuring The MATERIALS: After making the deal and on having the L/C opened in his favor, the next step for the exporter is set about the task of procuring or manufacturing the contracted merchandise.

Registration Of SALE: This is needed when the proposed items to be exported are raw jute and jute-made goods.

Shipment Of Goods : The following documents are normally involved at the stage of shipment: (a) EXP From, (b) photocopy of registration certificate, (c) photocopy of contract, (d) photocopy of the L/C, (e) customs copy of ERF Form for shipment of jute-made goods and EPC Form for raw jute, (f) freight certificate from the bank in case of payment of the freight if the port of lading is involved, (g) railway receipt, berg receipt or truck receipt, (h) shipping instructions, and (i) insurance policy.

The following points should be looked carefully for –

  • The terms of the L/C are in conformity with those of the contract.
  • The L/C is an irrevocable one, preferably confirmed by the Advising Bank.
  • The L/C allows sufficient time for shipment and a reasonable time for registration.
  • If the exporter wants the L/C to be transferable, advisable, he should ensure those stipulations are specially mentioned in the L/C.

At last, the exporter submits all these documents along with a Letter of Indemnity to the branch for negotiation. An officer scrutinizes all the documents. If the documents are clean one, the branch purchases the documents on the basis of banker-customer relationship. This is known as Foreign Documentary Bill Purchase (FDBP).

 

Foreign Remittance

On March 24, 1994 Bangladesh Taka was declared convertible for current account international transaction. As a result remittance became more liberalized. Outward remittance include sale of foreign currency by T.T., M.T., Draft, T.C. or in case for private, official and commercial purpose.

 

Remittance for Hajj :

ADs may release F.C. to the intending pilgrims as per institutions / circular to be issued by Bangladesh Bank each year.

Present Limit for Outward Remittance

Travelers Cheque is an instrument for a special amount of a widely accepted foreign currencies, issued in favor of travelers/visitors to carry foreign exchange for meeting their expenses abroad.

Traveler’s cheque may be in different currencies, such as US Dollar, Pound Starling, Japanese Yen, Saudi Riyal, Canadian Dollar, French Frances, German Marks, Swiss Frances etc.

10 years Foreign remittance performance of IBBL (at a glance)

YearTk(Crore)
19963328
19974806
19986361
19998415
20007644
20018879
200214670
20031666
20042366
20053694
20065381

 

Particulars200120022003200420052006
Achievement98791467016668236693694853819
Increase22354791199870011327916871
Growth (%)29.2448.513.624256.146

 

CountryShare
K.S.A33.16%
U.A.E11.92%
Kuwait10.40%
U.S.A15.14%
UK13.52%
Qatar3.80%
Oman3.36%
Bahrain1.28%
Others7.42%

 

 

CountryShare (%)
KSA65.83
AE5.87
Kuwait8.76
USA1.35
UK6.63
Qatar2.38
Oman1.10
Bahrain0.81
Others7.42

 

BankShare
Sonali34.77%
IBBl13.62%
Agrani12.74%
Uttara10.06%
Janata9.80%
Pubali5.46%
Rupali5.03%
NBL5.02%
AB Bank2.81%
IFIC2.12%
Others18.14%

 

SWOT Analysis of IBBL

Like all other organizations IBBL is also composed of some internal strengths and weaknesses and also of some external opportunities and threats in its whole life cycle.

Strengths:

  • IBBL provides its customer excellent and consistent quality in every service.
  • Most of the people of our country are illiterate & semi literate & very much sensitive to religion and IBBL takes this opportunity without any campaign and promotion.
  • IBBL is financially a sound banking organization.
  • IBBL utilizes state-of-the art technology to ensure consistent quality and operation.
  • IBBL provides its works force an excellent place to work.
  • IBBL has already achieved a good will among the clients.
  • IBBL has a world class Banking Training & Research Academy.

Weaknesses:

  • IBBL lacks well-trained human resource in some area.
  • IBBL lacks proper promotion campaign.
  • The procedure of credit facility is to long compare to other banks.
  • Employees are not motivated in some areas.
  • Crowd environment in the bank.

Opportunities:

  • Emergence of E-banking will pen more scope for IBBL.
  • IBBL can recruit experienced, efficient and knowledgeable work force as it offers good working environment.
  • Many branches can be opened in remote location.
  • IBBL can introduce more innovative and modern customer service.

Threats:

  • The worldwide trend of mergers and acquisition in financial institution is causing problem.
  • Frequent taka devaluation and foreign exchange rate fluctuation is causing problem.
  • Lots of new banks are coming in the scenario with new service.
  • Local competitors can capture huge market share by offering similar products.
  • Misconceptions about IBBL of the people.
  • Up-to-date services of other private banks.

 

Problems

  • As Islami Bank conducted under the guidelines and rules of Islami Shariah, but there is no separate sections for women entrepreneurs and women depositors.
  • IBBL never wants to recruit the women employee, but they never discourage the women entrepreneurs and women depositors.
  • There is no separate wash room and prayer room for the women clients.
  • Crowd environment everywhere, there is no banking environment at all and clients acts as it is their drawing room.
  • All the employees aren’t devoted minded.
  • More clients.
  • Weaker management system. One may be a good preacher that doesn’t mean he is a good banker but IBBL always gives priority to those who has special competence about Islam.
  • No one stop service & no SMS banking or Tele banking.
  • Insufficient ATM booth.
  • People have no proper knowledge and ideas about Investment mechanism and various products of IBBL.
  • No expected campaign to remove the misconceptions of the people.
  • IBBL couldn’t invest in all economic sectors which are prohibited by the law of Islam.
  • No promotional activities to increase its present and potential investment client.
  • IBBL doesn’t grant investment portfolio for new entrepreneurs, new businessmen, and new companies etc., which ultimately create “Class Banking”.
  • There is no facility for the student to open account.
  • Some of the rules and procedures of Bangladesh Bank goes against IBBL, and there are no separate rules and procedures for IBBL.

 

Recommendations

  • Need D-marketing.
  • IBBL should recruit women employee to serve the women clients and separate sections for the women clients.
  • Need proper campaign and promotion to encourage people.
  • Need one stop service to compete with other bank.
  • IBBL should start SMS banking and Phone banking.
  • IBBL should initiates different investment modes according to changing needs of clients by conducting huge research and study.
  • IBBL should grants investment portfolio to new entrepreneurs to fulfill the vision of “mass banking”.
  • For the convenient of Islami banking necessary amendment of rules may be recommended by the Bangladesh Bank..
  • IBBL should increase ATM booth.

 

Conclusion

Bangladesh is a developing country. Without developing banking sectors it’s not possible to progress rapidly with the business sector of this country. In such a platform IBBL is trying to develop banking sector with an attitude of serving the people. Islami economy and banking are bound together. This economy and banking is not possible to establish without Tauhid, Resalat and trust of Akhirat. To implement and practice these isms with a scheme is very difficult. Even though Bangladesh is a muslim majority federation, banking is a system that is linked all over the world. So for a new banking scheme with different terms is always tough to get a position in the market and emerge with success. IBBL not only has dared facing all the obstacles but also managed to establish this system with great success. This bank has established the fact that it is possible for banks to operate their activities according to the rules and regulations of Islami Shariah. Islam is a religion for human welfare as well the social welfare. All the steps of Islam are only for the welfare for human being. So we can clearly state that Islami bank has emerged as a blessing for people and implementing a shariah based banking system has been a very brave approach.