Investment is the action of deploying funds with the intention and expectation that they will earn a positive return for the owner. Funds may be invested in either real assets or financial assets. When resources are used for purchasing fixed and current assets in a production process or for a trading purpose, then it can be termed as real investment. The establishment of a factory or the purchase of raw materials and machinery for production purposes are examples in point. On the other hand, the purchase of a legal right to receive income in the form of capital gains or dividends would be indicative of financial investments. Specific examples of financial investments are: deposits of money in a bank account, the purchase of Mudaraba Savings Bonds or stock in a company. Ultimately, the savings of investors in financial assets are invested by the respective company into real assets in the form of the expansion of plant and equipment. 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
Investment of EXIM BANK
The total amount of investment of the bank stood at tk. 53,637,68 million as on December 31, 2009 as against tk. 40195.24 million as on December 31,2008 showing an increase of tk. 13,442.44 million with the growth rate of 33.44%. Investments are the core asset of the bank. The bank gives emphasis to acquire quality assets and does appropriate investment risk analysis while approving commercial and trade investment to clients.
|Year||Investment (Tk. in million)|
Investment Objectives Of EXIM BANK
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 up-liftment of the society.
To invest in the form of goods and commodities rather than give out cash money to the investment clients.
Industry and Business Segment Focus
The bank provides suitable investment services & products for the following sectors
Table2: Sector-wise Loan Facilities
|a) Steel & Engineering.||j) Brick Fields.|
|b) Food & Allied.||k) Edible Oil.|
|c) Agriculture||l) Assembling Industry.|
|d) Textile & Garments.||m) Collage Industry.|
|e) Pharmaceuticals & Chemicals.||n) Electronics & Electrical Commodities.|
|f) Paper & Paper Products.||o) Construction Company.|
|g) Service Industries.||p) Trading (Retail/Whole sale)|
|h) Housing & Real Estate.||q) Others.|
Source: Investment Policy of EXIM Bank
Major Investment Categories
The Bank has primarily divided all investment facilities into two major categories. In this section they are discussed in details.
Izara Bill Baia: These are the investment made by the Bank with fixed repayment schedules.
The terms of investment are:
Short term : Up to 12 months
Medium term : More than 12 and up to 36 months
Long term : More than 36 months.
Investment facility available under this category is:
- Izara Bill Baia (General): Short term, Medium term & long term investment allowed to individual/firm/industries for a specific purpose but for a definite period and generally repayable by installments fall under this head. This type of investment is mainly allowed to accommodate financing under the categories (i) Large & Medium Scale Industry and (ii) Small & Cottage industry. Very often term financing for agriculture & others.
Continuing loans These are investment having no fixed repayment schedule, but have an expiry date at which it is renewable on satisfactory performance. Investment facilities available under this category are:
- Bai-Muazzal: Continuous Investment allowed to individual/firm for trading as well as wholesale purpose or to industries to meet up the working capital requirements against hypothecation of goods as primary security fall under this type of lending. It is allowed under the categories (i) “Commercial Lending” when the customer is other than an industry and (ii) “Working Capital” when the customer is an industry.
- Murabaha: Financial accommodations to individual/firm for trading as well as for wholesale or to industries as working capital against pledge of goods as primary security fall under this head of investment. It is also a continuous investment and like the above allowed under the categories (i) “Commercial Lending” and (ii) “Working Capital”.
Other Major Categories of Investment
Investment facilities of the Bank are also categorized under 7 prime categories:
Investment facilities to the agricultural sector fall under this category. It is subdivided into two major heads:
a) Investment to primary producers: Financing under these categories refers to the investment facilities allowed to production units engaged in farming, fishing, forestry or livestock.
b) Investment to dealers/distributors: It refers to the financing allowed to input dealers and (or) distributors in the agricultural sectors.
Izara Bill Baia for Large & Medium Scale Industry
This category of investment accommodates the medium and long term financing for capital structure formation of new industries or for expansion of the existing units who are engaged in manufacturing goods and services. Investment Facility available under this category is:
- Izara (Lease Finance): It is one of the most convenient sources of acquiring capital machinery and equipment whereby a client is given the opportunity to have an exclusive right to use an asset usually for an agreed period of time against payment of rent. It is a term financing repayable by installment.
Izara Bill Baia to Small & Cottage Industries
These are the medium and long term investment allowed to small & cottage manufacturing industries.
Investment allowed to the manufacturing units to meet their working capital requirements, irrespective of their size-big, medium or small, fall under the category. These are usually continuing investment and as such fall under the head “Bai-Muazzal”
Investment on Export
Investment facilities allowed to facilitate export of all items against Letter of Credit and/or confirmed export orders fall under this category. Investment Facilities available under this category are:
- Musharaka Pre-shipment (Export Cash Credit): Financial accommodation allowed to a customer for exports of goods fall under this head and is categorized as “Investment on Export”. The loans are liquidated out of export proceeds with 180 days.
- Musharaka Pre-shipment (Packing Credit): Investment allowed to a customer against specific L/C contract for processing/packing of goods to be exported falls under this head and is categorized as “Mushraka Pre-shipment”. The investments are adjusted from proceeds of the relevant exports within 180 days.
- Foreign Documentary Bill Purchase (F.D.B.P): Payment made to a customer through purchase/negotiation of a foreign documentary bills falls under this head. This temporary investment is adjustable from the proceeds of the shipping/export documents.
- Local Documentary Bill Purchase (LDBP): Payment made against documents representing sell of goods to Local export oriented industries that are deemed as exports and which are denominated in Local Currency/Foreign Currency falls under this head. This temporary liability is adjustable from proceeds of the Bill.
- Foreign Bill Purchase (FBP): Payment made to a customer through purchase of foreign currency cheques/drafts fall under this head. This temporary loan is adjustable from the proceeds of the cheque/draft.
Short-term loans and continuing investments allowed for commercial purposes fall under this category. It includes export-import financing, financing for internal trade, service establishment etc. No medium and long-term investments are accommodated here. Loan Facilities available under this category are:
- Bai-Muazzal (Export): investments allowed for purchasing foreign currency for payment against L/Cs (Back to Back) where the exports do not materialize before the date of import Payment fall under this head. This is also a investment for temporary period, which is known as export finance.
- Murabaha Import Bills (MIB): Payment made by the Bank against lodgment of shipping documents of goods imported through L/C falls under this head. It is an interim investment connected with import and is generally liquidated against payment usually made by the party for retirement of the documents for release of imported goods from the customs authority.
- Murabaha Post Import (MPI) Loans allowed for retirement of shipping documents and release of goods imported through L/C taking effective control over the goods by pledge in go down under bank’s lock & key fall under this type of investment. This is a temporary investment connected with import that is known as post-import finance.
- Trust Receipt (TR) Loan allowed for retirement of shipping documents and release of goods imported through L/C falls under this head. The goods are handed over to the importer under trust with the arrangement that sale proceeds should be deposited to liquidate the investment within a given period. This is also a temporary loan connected with import and known as post-import finance.
- Inland Bills Purchase (IBP) Payment made through purchase of inland bills/cheques to meet urgent requirement of the customer falls under this type of loan facility. This temporary loan is adjustable from the proceeds of bills/cheques purchased for connection.
Any investment that does not fall in any of the above categories is considered under the category “Others”. It includes loans to i) Transport equipments, ii) Construction works including house (commercial/residential), iii) work order finance, iv) personal loan etc. Investment Facilities available under this category are:
- Izara Bill Baia (House Building): Investment allowed to individual/enterprises for construction of building for commercial purpose fall under this type of investment. The amount is repayable by monthly installment with a specified period.
- Izara Bill Baia (Staff House Building): investment allowed to Bank’s employees for purchase/construction of house falls under this Loan.
- Other Loan to Staff: Investment allowed to employees other than for House Building is grouped under head Staff Izara Bill Baia (General).
- Izara Bill Baia (Hire Purchase): It is a type of installment-based loan under which the purchaser agrees to take the goods on hire at a stated rental, which is inclusive of the repayment of principal as well as profit for adjustment of the loan within a specified period.
- House Hold Durable Scheme (HDS): It is a special investment scheme of the Bank to finance purchase of consumer durable to the fixed income group to raise their standard of living. The investments are allowed on soft terms against personal guarantee and deposit of specified percentage of equity by the customers. The investment is repayable by monthly installment within a fixed period.
- Quard (General/Financial Obligation): Investment allowed to individual/firms against financial obligation (i.e. lien on MTDR/PSP/BSP/Insurance Policy/Share etc.).
- Bai-Muazzal (Work Order): Investment allowed against assignment of work order for execution of contractual work falls under this head. This investment is generally allowed for a definite period and specific purpose not for continuous purpose.
Loan Facilities for single borrower/Group or syndication
The bank from time to time allows loan facilities to a single customer/Group (Funded & non funded) up its 50% of total capital out of which funded facilities does not exceed 25% of total capital. In case a proposal in submitted to Head Office, then the Bank considers the extent of the Bank’s global exposure (risk) to that customer group.
Investment Facility Parameters
Bank does not ordinarily go for any loan facilities for long-term basis.
- Short-term loan facilities are for 3 months to 12 months.
- Medium term loan facilities are for 12 months to 36 months.
- Long-term loan facilities are for more than 36 months.
i) Maximum 50% (Funded & non-funded) of total capital of the Bank.
ii) Maximum 25% (funded) facilities of total capital of the Bank.
All assets (Bai-Muazzal & Murabaha) are to be covered under proper insurance risk with enlisted Insurance Companies.