Report on Definition of  Foreign Exchange

Foreign Exchange is a process which is converted one national currency into another and transferred money from one country to another countries.

According to Foreign Exchange is that section of economic science which deals with the means and method by which right to wealth in one country’s currency are converted into rights to wealth in terms of another country’s currency. It involved the investigation of the method by which the currency of one country is exchanged for that of another, the causes which rented such exchange necessary the forms which exchange may take and the ratio or equivalent values at which such exchanges are effected.

Foreign exchange is the rate of exchange in the both country’s currency.

FOREIGN TRADE AND FOREIGN EXCHANGE:

International trade refers to trade between the residents of two different countries.

Each country functions as a sovereign State with its set of regulations and currency. The difference in the national of the exporter and the importer presents certain peculiar problems in the conduct of international trade and settlement of the transactions arising therefrom. Important among such problems are :

(a) Different countries have different monetary units;
(b) Restrictions imposed by countries on import and export of goods;
(c) Restrictions imposed by nations on payment from and into their countries;
(d) Differences in legal practices in different countries.

Foreign exchange means foreign currency and includes :-

(i) All deposits, credits and balances payable in any foreign currency and any drafts,
travelers cheques, letters of credit and bills of exchange, expressed or drawn in Indian currency but payable in any foreign currency;

(ii) Any instrument payable, at the option of the drawee or holder thereof or any other party thereto. Either in Indian currency or in foreign currency or partly in one and partly in the other. Thus, foreign exchange includes foreign currency, balances kept abroad and instruments payable in foreign currency.

PRINCIPLES OF FOREIGN EXCHANGE:

The following principles are involved in Foreign exchange:
i) The entire system
ii) The media used
iii) The monetary unit.

FUNCTION OF FOREIGN EXCHANGE:

The Bank For this reason, the employee who is related of the bank to foreign exchange, specially foreign business should have knowledge of these following functions :-

i) Rate of exchange.
ii) How the rate of exchange works.
iii) Forward and spot rate.
iv) Methods of quoting exchange rate.
v) Premium and discount.
vi) Risk of exchange rate.
vii) Causes of exchange rate.
viii) Exchange control.
ix) Convertibility.
x) Exchange position.
xi) Intervention money.
xii) Foreign exchange transaction.
xiii) Foreign exchange trading.
xiv) Export and import letter of credit.
xv) Non-commercial letter of trade.
xvi) Financing of foreign trade.
xvii) Nature and function of foreign exchange market.
xviii) Rules and Regulation used in foreign trade.
xix) Exchange Arithmetic.

Export Finance:

Foreign Exchange Trade of SIBL is dealt with its 09 AD branches out of which 4 branches are in Dhaka and the remaining 05 are in Chittagong, Khulna, Sylhet, Rajshahi and Bogra. We as a 21st Century Bank, providing our services in foreign trade through import and export finance and also playing significant role in the area of foreign remittance. To facilitate the import obligation of our Bank as well as considering the requirement of foreign currency of our country we encourage potential exporters to do their export business with us. We provide working capital on their requirement. Presently our export finance is extended for RMG and for non-traditional item that is handled by a number of experienced bankers. We offer competitive exchange rate for foreign currency to our valued exporters. In the last 03 years our export business performance is significant.

Import Finance

We also deal in import business and our import business is extended to commercial importers (traders) for import of various shariah approved items and industrial importers (Users) for import of raw cotton, yarn, clinker, pharmaceutical raw materials, TV parts, Computer parts etc raw materials for their industries.

We also provide post import finance such as MPI (LIM), LTR and HPSM (Lease financing). Our post import finance is also provided for importing of capital machinery.

Foreign Remittance:

We are playing important role in the Foreign Remittance sector also.

We have correspondent relationship with almost all major 122 Banks of 109 countries of the world like Standard Chartered Bank, American Express Bank Limited, HSBC, HBZ Finance, Mashreq Bank PSC, Dresdner Bank AG and with local banks in Pakistan, India, Nepal and Bhutan etc with whom we have advising, reimbursing and add confirming arrangement.

Visitors of our website can download our Foreign Currency Current Account (FCCA) Opening Form from the Download Section and also can take a print of the Form in Legal Size Paper.

SWIFT

SIBL is the member of SWIFT and we have 09 SWIFT workstations in all of our 09 AD branches. Besides our 24 branches are equipped with online banking. We are trying to keep all the SWIFT workstations under online system. Inward remittances are credited to the beneficiary ‘s account on the same day of receipt if the beneficiary maintains A/C with them or within next 24 hours on receipt of the same from our overseas correspondents. All correspondences of foreign trade both export and import are communicated through SWIFT. As a result foreign exchange trade becomes expeditious and instant.

Socil Investment Bank Limited is one of the first few Bangladeshi Banks who have become member of SWIFT (Society for Worldwide Interbank Financial Telecommunication) in 1999. SWIFT is members owned co-operative, which provides a fast and accurate communication network for financial transactions such as Letters of Credit, Fund transfer etc. By becoming a member of SWIFT, the Bank has opened up possibilities for uninterrupted connectivity with over 5,700 user institutions in 150 countries around the world.

LETTER OF CREDIT (L/C)

DEFINITION OF L/C

On behalf of the importer if the Bank to open a credit in foreign currency in favour of his exporter at a bank in the letters country. The letter of credit is issued against payment of amount by the importer or against satisfactory security. The L/C authorizes the exporter to draw a draft under is terms and sell to a specified bank in his country. He has to hand over to the bank, will the Bill of exchange, shipping documents and such other papers as may be agree upon between the exporter and the importer. The exporter is assured of his payment because of the credit while the importer is protected because documents in respect of export of goods have to be delivered by the exporter to the paying bank before the payment is made.

From of letter of credit

A letter of credit (L/C) may be two forms. These as below :
i) Revocable letter of credit.
ii) Irrevocable letter of credit.

(i) Revocable L/C:

If any letter of credit can be amendment or change of any clause or canceled by consent of the exporter and importer is known as revocable letter of credit.

A revocable letter of credit can be amended or canceled by the issuing bank at any time without prior notice to the beneficiary. It does not constitute a legally binding undertaking by the bank to make payment. Revocation is possible only nntil the documents have been honoured by the issuing bank or its correspondent. Thus a revocable credit does not usually provide adequate security for the beneficiary.

(ii) Irrevocable L/C:

If any letter of credit can not be changed or amendment without the consent of the importer and exporter is known as irrevocable letter of credit.

An irrevocable credit constitutions a firm undertaking by the issuing bank to make payment. It therefore, gives the beneficiary a high degree of assurance that he will paid to his goods or services provide he complies with terms of the credit.

TYPES OF LETTER OF CREDIT:

Letter of Credit are classified into various types according to the method of settlement employed. All credits must clearly indicate in major categories.

i) Sight payment credit.
ii) Deferred payment credit.
iii) Acceptance credit.
iv) Negotiation credit.
v) Red close credit.
vi) Revolving credit.
vii) Stand by credit.
viii) Transferable credit.

(i) Sight payment credit :

The most commonly used credits are sight payment credits. These provide for payment to be made to the beneficiary immodestly after presentation of the stipulated documents on the condition that the terms of the credit have been complied with. The banks are allowed reasonable time to examine the documents.

(ii) Deferred payment credit :

Under a deferred payment credit the beneficiary does not receive payment when his presents the documents but at a later date specified in the credit. On presenting the required documents, he received the authorized banks written undertaking to make payment of maturity. In this way the importer gains possession of the documents before being debited for the amount involved.

In terms of its economic effect a deterred payment credit is equivalent to an acceptance credit, except that there is no bill of exchange and therefore no possibility of obtaining money immediately through a descant transaction. In certain circumstances, how ever, the banks payment undertaking can be used as collateral for an advance, though such as advance will normally only be available form the issuing or confirming bank. A discountable bill offers wider scope.

TYPES OF LETTER OF CREDIT:

(iii) Acceptance Credit:

With an acceptance credit payment is made in the form of a tern bill of exchange drawn on the buyer, the issuing Bank or the pendent bank. Once he has fulfilled the credit requirements, the beneficiary can demand that the bill of exchange be accepted and returned to him. Thus the accepted bill takes the place of a cash payment.

The beneficiary can present the we accented bill to his own bank for payment at maturity or for discounting, depending on whether or not he wants cash immediately. For simplicities sake the beneficiary usually gives on instruction that the accepted bill should be left in the safekeeping of one of the banks involved until it matures. Bill of exchange drawn under acceptances credit usually have a term of 60-180 days.

The purpose of an acceptance is to give the importer time to make payment. It he sells the goods before payments fall due, he can use the precedes to meet the bill of Exchange in this way, he does not have to borrow money to finance the transaction.

(vi) Negotiation credit:

Negotiation means the purchase and sale of bill of exchange or other marketable instruments. A negotiation credit is a commercial letter of credit opened by the issuing bank in the currency of its own country and addressed directly to the beneficiary. The letter is usually delivered to the addressee by a corespondent bank. This credit is sometimes also as Hand on credit.

The letter of credit empowers the beneficiary to draw a bill of exchange on the using bank, on any other named drawer or on the applicant for the credit. The beneficiary can them present this bill to a bank for negotiation, together with the original letter of credit and the documents stipulated therein.

Payment of the bill of exchange is guaranteed by the issuing bank on the condition that the documents presented by the beneficiary are in order. The most common form of negotiation credit permits negotiation by any bank. In rare case the choice is limited to specified banks.

(iv) Red clause credit:

In the case of a red clauses credit, the seller can obtain an advance for an agreed amount from the correspondent bank, goods that are going to be delivered under the documentary credit. On receiving the advances, the beneficiary must give a receipt and provide a written undertaking to present the required documents before the credit expires.

The advance is paid by the correspondent bank, but it is the using bank that assumes liability. If the sellers does not present the required documents in time and fails to refund the advance, the correspondent bank debits the issuing bank with the amount of the advance plus interest. The issuing bank, in turn, has reveres to the applicant, who therefore bears the risk for the advance and the interest accursed.

The clause permitting the correspondent bank to make an advance used to be written on red in home the name red clause credit.

(v) Revolving Credit :

Revolving credit can be used when goods are to be delivered in installment at specified intervals. The amount available at any one time is equivalent to the value of one partial delivery.

A revolving credit can be cumulative or non-cumulative means that amount from unused or incompletely used portions can be carried forward to subsequent period. If a credit is non-cumulative, portions not used in the prescribing period case to be available.

(vi) Stand by credit:

Stand by credit are encountered principally in the US. Under the laws of most US states, banks are prohibited from issuing regular quarantines, so credits are used instead. In Europe, too the use of this type of credit is increasing by virtue of their documentary credit, stand-by credit are governed by the UCP. However, their function is that of a grantee.

The types of payment and performance that can be guaranteed by stand-by credits include the following :

– Payment of thorium bill of exchange
– Repayment of bank advance
– Payment of goods delivered.
– Delivery of goods in accordance wets contract and
– Execution of construction contracts, supply and install contracts.

In order to enforce payment by the bank, the beneficiary merely presents a declaration stating that the applicant for the credit has failed to meet his contractual obligation. This declaration may have to be accompanied by other documents.

(vii) Transferable credit:

Transferable credit are particularly well adapted to the requirements of international trade. A trader who receives payment from a buyer in the form of a transferable documentary credit can use that credit to pay his own supplier. This enables him to carry out the transaction with only a limited and lay of his own funds.

The buyer supplies for an irrecoverable credit issued in the traders favour. The issuing bank must expressly designate the credit as transferable.
As soon as the trader receives the confirmation of credit he can request the bank to transfer the credit to his supplier. The bank is under no obligation to effect the transfer except in so far as it has expressly consented to do so.

The costs of the transfer are usually charged to the trader and the transferring bank is entitled to delete them in advance.

(iii) Acceptance Credit :

With an acceptance credit payment is made in the form of a tern bill of exchange drawn on the buyer, the issuing Bank
or the pendent bank. Once he has fulfilled the credit requirements, the beneficiary can demand that the bill of exchange be accepted and returned to him. Thus the accepted bill takes the place of a cash payment.

The beneficiary can present the we accented bill to his own bank for payment at maturity or for discounting, depending on whether or not he wants cash immediately. For simplicities sake the beneficiary usually gives on instruction that the accepted bill should be left in the safekeeping of one of the banks involved until it matures. Bill of exchange drawn under acceptances credit usually have a term of 60-180 days.

The purpose of an acceptance is to give the importer time to make payment. It he sells the goods before payments fall due, he can use the precedes to meet the bill of Exchange in this way, he does not have to borrow money to finance the transaction.

(vi) Negotiation credit :

Negotiation means the purchase and sale of bill of exchange or other marketable instruments. A negotiation credit is a commercial letter of credit opened by the issuing bank in the currency of its own country and addressed directly to the beneficiary. The letter is usually delivered to the addressee by a corespondent bank. This credit is sometimes also as Hand on credit.

The letter of credit empowers the beneficiary to draw a bill of exchange on the using bank, on any other named drawer or on the applicant for the credit. The beneficiary can them present this bill to a bank for negotiation, together with the original letter of credit and the documents stipulated therein.

Payment of the bill of exchange is guaranteed by the issuing bank on the condition that the documents presented by the beneficiary are in order. The most common form of negotiation credit permits negotiation by any bank. In rare case the choice is limited to specified banks.

(iv) Red clause credit :

In the case of a red clauses credit, the seller can obtain an advance for an agreed amount from the correspondent bank, goods that are going to be delivered under the documentary credit. On receiving the advances, the beneficiary must give a receipt and provide a written undertaking to present the required documents before the credit expires.

The advance is paid by the correspondent bank, but it is the using bank that assumes liability. If the sellers does not present the required documents in time and fails to refund the advance, the correspondent bank debits the issuing bank with the amount of the advance plus interest. The issuing bank, in turn, has reveres to the applicant, who therefore bears the risk for the advance and the interest accursed.

The clause permitting the correspondent bank to make an advance used to be written on red in home the name red clause credit.

(v) Revolving Credit :

Revolving credit can be used when goods are to be delivered in installment at specified intervals. The amount available at any one time is equivalent to the value of one partial delivery.

A revolving credit can be cumulative or non-cumulative means that amount from unused or incompletely used portions can be carried forward to subsequent period. If a credit is non-cumulative, portions not used in the prescribing period case to be available.

(vi) Stand by credit :

Stand by credit are encountered principally in the US. Under the laws of most US states, banks are prohibited from issuing regular quarantines, so credits are used instead. In Europe, too the use of this type of credit is increasing by virtue of their documentary credit, stand-by credit are governed by the UCP. However, their function is that of a grantee.

The types of payment and performance that can be guaranteed by stand-by credits include the following :

– Payment of thorium bill of exchange
– Repayment of bank advance
– Payment of goods delivered.
– Delivery of goods in accordance wets contract and
– Execution of construction contracts, supply and install contracts.

In order to enforce payment by the bank, the beneficiary merely presents a declaration stating that the applicant for the credit has failed to meet his contractual obligation. This declaration may have to be accompanied by other documents.

(vii) Transferable credit :

Transferable credit are particularly well adapted to the requirements of international trade. A trader who receives payment from a buyer in the form of a transferable documentary credit can use that credit to pay his own supplier. This enables him to carry out the transaction with only a limited and lay of his own funds.

The buyer supplies for an irrecoverable credit issued in the traders favour. The issuing bank must expressly designate the credit as transferable.
As soon as the trader receives the confirmation of credit he can request the bank to transfer the credit to his supplier. The bank is under no obligation to effect the transfer except in so far as it has expressly consented to do so.

The costs of the transfer are usually charged to the trader and the transferring bank is entitled to delete them in advance.

PARTIES TO A LETTER OF CREDIT:

A letter of credit is issued by a Bank at the request of an importer in favour of an exporter from whom he has contracted to purchases some commodity or commodities. The importer, the exporter and the issuing bank are parties to the letter of credit. There are however, one or more than one banks that are involved in various capacities and at various stages to play an important role in the total operation of the credit.

i) The opening Bank.
ii) The Advising Bank.
iii) The Buyer and the Beneficiary.
iv) The paying Bank.
v) The negotiating Bank.
vi) The confirming Bank.

i) The opening Bank :

The opening Bank is one that issues the letter of credit at the request of the buyer. By issuing a letter of credit it takes upon itself the liability to pay the bills drawn under the credit. If the drafts are negotiated by the another bank, the opening Bank reimburses that Bank. As soon as the opening Bank, issuing a letter of credit (L/C), it express its undertaking to pay the bill or bills as and when they are drawn by the beneficiary under the credit. When the bills are presented to or when antic is received that bills have been presented to a paying or negotiating Banks its liability matures.

ii) The Advising Bank :

The letter of credit is often transmitted to the beneficiary through a bank in the latters country. The bank may be a branch or a correspondent of the opening bank. The credit is some times advised to this bank by cable and is then transmitted by it to the beneficiary on its own special form. On the other occasions, the letter is sent to the bank by mail or telex and forwarded by it to the exporter. The bank providing this services is known as the advising bank. The advising bank undertakes the responsibility of prompt advice of credit to the beneficiary and has to be careful in communicating all its details.

iii) The Buyer and the Beneficiary :

The importer at whose request a letter of credit is issued is known as the buyer. On the strength of the contract that he makes with the exporter for the purchase of some goods that the letter of credit is opened by the opening bank.

The exporter in whose favour the credit is opened and to whom the letter of credit is addressed is known as the beneficiary. As the seller of goods he is entitled to receive payment which he does by drawing bills under the letter of credit (L/C). As soon as he has shipped the goods and has collected the required documents, he draws a set of papers and presents it with the documents to the opening bank or some other bank mentioned in the L/C.

iv) The paying Bank :

The paying bank only pays the drafts drawn under the credit but under takes no opening bank, by debating the letters accounts with it if there is such an account or by any other measured up, between the two bankers. As soon as the beneficiary has received payment for the draft, he is out of the picture and the rest of the operation concerns only the paying bank and the opening bank.

v) The Negotiating bank :

The negotiating bank has to be careful in scrutinize that the drafts and the documents attached there to are in conformity with the condition laid down in the L/C. Any discrepancy may result in refused on the part of the opening bank to honors the instruments is such an eventuality the negotiating bank has to look back to the beneficiary for refund of the amounts paid to him.

vi) The Confirming Bank :

Sometimes an exporter stipulates that a L/C issued in his favour be confirm by a bank in his own country. The opening this country to add its confirming to the credit the bank confirming the credit is known as the confirming bank and the credit is known as confirmed credit.

CONTENTS OF THE LETTER OF CREDIT:

Banks normally issued letter of credit (L/C) on forms which clearly indicate the banks name and extent of the banks obligation under the credit. The contents of the l/c of different Banks may be different .In general l/c contain the follwing information :-

i) Name of the buyer : who is also known as the accounted since it is for his account that the credit has been opened.
ii) Name of the seller : Who is also known as the beneficiary of the credit.
iii) Moment of the credit : Which should be the value of the merchandise plus any shipping charges intent to be paid under the credit.
iv) Trade terms : Such as F.O.B and CIF
v) Tenor of the Draft which is normally dependent upon the requirements of the buyer.
vi) Expiration date : Which is specified the latest date documents may be presented. In this manner or by including additionally a latest shipping date, the buyer may exercise control over the time of shipment.
vii) Documents required : Which will normally include commercial invoice consular or customers invoice, insurance policies as certificates, if the source is to be effected by the beneficiary and original bills of lading.
viii) General description of the merchandise : Which briefly and in a general manner duly describes the merchandise covered by a letter of credit.

PROCEDURES OF OPENING THE L/C:

The importer after receiving the proforma invoice from the exporter, by applying for the issue of a documentary credit, the importer request his Bank to make a promise of payment to the supplier. Obviously, the bank will only agree to this request if it can rely on reimbursement by the applicant. As a rule accepted as the sole security for the credit particularly if they are not the short of commodity that can be traded on an organized market, such an arrangement would involve the bank in excessive risk outside its specialist field. The applicant must therefore have adequate funds in the bank account or a credit line sufficient to cover the required amount.

Banks deal in documents and not in goods. Once the bank has issued the credits its obligation to pay is conditional on the presentation of the stipulated documents with in the prescribed time limit. The applicant cannot prevent a bank from honouring the documents on the grounds that the beneficiary has not delivered goods on redder reissues as contracted.

The importer submit the following documents before opening of the L/C :
a. Tax Identification Number (TIN)
b. Valid Trade License.
c. Import Registration Certificate (IRC)

The Bank will supply the following documents before opening of the L/C :
a. LCA form.
b. Application and Agreement form.
c. IMP form
d. Necessary charge documents for documentation.

The above documents / papers must be completed duly signed and filled in by the party according to the instruction of the banker.

Investment Banking

Bai-Muazzal

Commercial

Bai-Muajjal is a contract between Buyer and Seller under which the seller sells certain specific goods ( permissible under Shariah and 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. This mode is applicable for working capital finance. In conventional Banks, the allow loan in the from of cash credit against hypothecation of goods & collateral security.

House Hold

Bai-Muajjal is a contract between Buyer and Seller under which the seller sells certain specific goods ( permissible under Shariah and 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. This mode is applicable for working capital finance. In conventional Banks, the allow loan in the from of cash credit against hypothecation of goods & collateral security.

Trust Receipt

Bai-Muajjal is a contract between Buyer and Seller under which the seller sells certain specific goods ( permissible under Shariah and 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. This mode is applicable for working capital finance. In conventional Banks, the allow loan in the from of cash credit against hypothecation of goods & collateral security.

HPSM:

Commercial

Hire Purchase ( Participatory Ownership) is a Special type of contract which has been developed through practice. Actually it is a synthesis of three contracts:

Shirkat
Ijarah and
Sale

1. Shirkatul Melk

Shirkat means partnership. Shirkatul Melk means participation 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.

2. Ijarah

The term Ijarah has been derived from the Arabic words Ajr and Ujrat which means consideration, return, wages or rent. This is really the exchange value or consideration, return, wages, rent of services of an ASSET. Ijarah has been defined as a contract between two parties, the Hiree and Hirer where the Hirer enjoys or reaps a specific service or benefit against a specified consideration or rent from the asset owned by the Hiree. It is a hire agreement under which a certain asset is hired out by the Hiree to a Hirer against fixed rent or rentals for a specified period.

1. 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 (participatory ownership) mode both the Bank and the client supply equity in equal or unequal proportion for purchase of an asset like land, building, machinery, transport etc. Purchase the asset with that equity money, own the same jointly, share the benefit as per agreement and bear the loss in proportion to their respective equity. The share, part or portion of the asset owned by the Bank is hired out to the client partner for a fixed rent per unit of time for a fixed period. Lastly the Bank sells and transfers the ownership of it’s 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 hired period after the expiry of the hire agreement.

Real Estate

Hire Purchase ( Participatory Ownership) is a Special type of contract which has been developed through practice. Actually it is a synthesis of three contracts:

Shirkat
Ijarah and
Sale

1. Shirkatul Melk:

Shirkat means partnership. Shirkatul Melk means participation 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.

2. Ijarah:

The term Ijarah has been derived from the Arabic words Ajr and Ujrat which means consideration, return, wages or rent. This is really the exchange value or consideration, return, wages, rent of services of an ASSET. Ijarah has been defined as a contract between two parties, the Hiree and Hirer where the Hirer enjoys or reaps a specific service or benefit against a specified consideration or rent from the asset owned by the Hiree. It is a hire agreement under which a certain asset is hired out by the Hiree to a Hirer against fixed rent or rentals for a specified period.

3. 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 (participatory ownership) mode both the Bank and the client supply equity in equal or unequal proportion for purchase of an asset like land, building, machinery, transport etc. Purchase the asset with that equity money, own the same jointly, share the benefit as per agreement and bear the loss in proportion to their respective equity. The share, part or portion of the asset owned by the Bank is hired out to the client partner for a fixed rent per unit of time for a fixed period. Lastly the Bank sells and transfers the ownership of it’s 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 hired period after the expiry of the hire agreement.

Transport

Hire Purchase ( Participatory Ownership) is a Special type of contract which has been developed through practice. Actually it is a synthesis of three contracts:

Shirkat
Ijarah and
Sale

1. Shirkatul Melk:

Shirkat means partnership. Shirkatul Melk means participation 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.

2. Ijarah:

The term Ijarah has been derived from the Arabic words Ajr and Ujrat which means consideration, return, wages or rent. This is really the exchange value or consideration, return, wages, rent of services of an ASSET. Ijarah has been defined as a contract between two parties, the Hiree and Hirer where the Hirer enjoys or reaps a specific service or benefit against a specified consideration or rent from the asset owned by the Hiree. It is a hire agreement under which a certain asset is hired out by the Hiree to a Hirer against fixed rent or rentals for a specified period.

3. 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 (participatory ownership) mode both the Bank and the client supply equity in equal or unequal proportion for purchase of an asset like land, building, machinery, transport etc. Purchase the asset with that equity money, own the same jointly, share the benefit as per agreement and bear the loss in proportion to their respective equity. The share, part or portion of the asset owned by the Bank is hired out to the client partner for a fixed rent per unit of time for a fixed period. Lastly the Bank sells and transfers the ownership of it’s 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 hired period after the expiry of the hire agreement.

Mudaraba

Bill of Exchange:

Bai-Murabaha is a contract between a Buyer and Seller under which the Seller sells certain specific goods permissible under Islamic Shariah and Law of the land to the Buyer at a cost plus agreed profit payable in cash 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.

In case of Bai-Murabaha Banks procure the goods as per indent of the customer, retain it in its custody and sell the same part by part or at a time to the client who gave indent for the goods. This mode is applicable for working capital finance. In conventional Banks, they allow Loan against pledge of goods against fixed rate of interest.

Post Import:

Bai-Murabaha is a contract between a Buyer and Seller under which the Seller sells certain specific goods permissible under Islamic Shariah and Law of the land to the Buyer at a cost plus agreed profit payable in cash 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.

In case of Bai-Murabaha Banks procure the goods as per indent of the customer, retain it in its custody and sell the same part by part or at a time to the client who gave indent for the goods. This mode is applicable for working capital finance. In conventional Banks, they allow Loan against pledge of goods against fixed rate of interest.

Musharaka:

Bai-Murabaha is a contract between a Buyer and Seller under which the Seller sells certain specific goods permissible under Islamic Shariah and Law of the land to the Buyer at a cost plus agreed profit payable in cash 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.

In case of Bai-Murabaha Banks procure the goods as per indent of the customer, retain it in its custody and sell the same part by part or at a time to the client who gave indent for the goods. This mode is applicable for working capital finance. In conventional Banks, they allow Loan against pledge of goods against fixed rate of interest

SOWT Analysis

SOWT Analysis:

SOWT analysis is an matter to know the present status of Strength, Opportunity, Weakness and Threats of SIBL. The analysis also helps the bank Management to take relevant measure to make up its weakness and to face the external threats of the competitors.

The term SOWT includes the following:

S à Strength
O à Opportunity
W à Weakness
T à Threats
Now we will discuss the Strength, Opportunity, Weakness and Threats in the following paragraphs:

Strength:

SIBL enjoy the following Strengths:

The banking services are easily accessible and feasible.

The advances growth of the bank is increasing rapidly.

The bank is a member of ATM network along with other ten banks which enabled the bank to extend modern banking facility to the customer.

The bank provides modern online banking services to the customer.

The existing employee of the Social Investment Bank, the Principal branch office is very efficient and skilled.

Opportunity:

SIBL enjoy the following Strengths:

The SIBL recently overcome restriction of the problem banking.

Now it will be easy to get permission from Bangladesh Bank to open branch.

In developing countries like Bangladesh, banking services would be the only sources of financing.

They can diversify their portfolio by introducing new sectors, like, introducing ATM card, one point services, tele-banking, and credit cards.

Weakness:

SIBL enjoy the following Strengths:

Lack of clearly defined marketing objectives.

Poor qualify of Strategic management decision-making.

Lack of promotional objectives and strategies.

Numbers of branches are very limited.

Numbers of ATM Booth are also very limited.

SIBL does not provide services to the rural area.

Threats:

SIBL enjoy the following Strengths:

The most of threats of SIBL’s are coming from the competitors.

Company has a chance to lose its market share to the competitors if it does not take necessary actions.

Opening of the recently permitted new banks, without implementation of the needed reforms, could lead to unethical competitor in and house trading in the country’s troubled banking sector.

The size of the market and the present state of economic activities did not provide adequate scope for business for a large number of banks with poor management and backdated operating system.

The customer services of the bank are not too good like other private Banks.

In general banking department they follow the traditional banking system. The entire banking procedure is not fully computerized.

Findings

During my internee period in the Social Investment Bank Limited, Principal Branch I have worked in the General Bank and Foreign Exchange more than two months. During this period I have found that all the employees of those departments are very skilled, active, self-motivated and absolutely friendly to the customers. However major findings of my internship program are as follows:

There are no computers in payment order sections. That’s the services is not as promote as the customers demend.

The branch is not AD branch for this reason required more time in the foreign exchange operation.

In the principal branch, there is no place for the employees to take there lunch.

The Bank didn’t give employees time for lunch .

There is no place for taking lunch for that reason women employees irritate for that.

RECOMMENDATION:

As per earnest observation some suggestions for the improvement of the situation are given bellow:

To attract more clients Social Investment Bank Limited has to create a new marketing strategy, which will increase the total export and import Business.

Effective and efficient initiatives are necessary to recover the default loan.

Alternative incentive package for the exporter will help to increase the Export and according it will diminished the balance of payment gap of Social Investment Bank Limited.

Long term training very much required for the bank officer’s.

Computerized banking system and latest communication devices are the most important elements for this country.

Foreign exchange operations of others banks are more dynamic and less time consuming. SIBL should take some initiative to complete with those banks.

Bank can provide foreign market report, which will enable the exporter to evaluate the demand for their products in foreign countries.

In opening A/C some additional documents are needed as compared with theoretical record. Like trade license, member of Dhaka chamber of commerce and industry (DCCL) in Dhaka city. Again some documents are not essential practically as referred in theory. For example, the photo of the person who will open A/C, and sometime introducer.

There is a rule to deposit at least an amount of money in case of opening an account. But it is not strictly followed. Sometimes more money is asked from a new customer who discourages him to open an account in the bank. I think the amount should be fixed at a level that is not altered from customer to customer.

In case of crossing cheque I did not observe any crossing with “Not negotiable” as much as I stayed in bank orientation. Though theory have been given emphasis on the effect of “A/C pay only” and “not negotiable”. The role of “Not negotiable” is not so much. There is no provision in law regarding “A/C payee crossing”. But it has been developed in practice. If the words, “A/C payee” are added to a crossing, it becomes an A/C pay crossing.

The degree of relationship between banker and customer determines how much theory is deviated from practical work.

When a client try to open an A/C he must have to need an introducer, sometime it may create a problems for the clients.

Under this department, practice strictly supports theories. There is not too much discrepancy between them. All the functions of Account Department provided by SIBL Principal Branch are based on accounting theories and procedures.

In case of amortization there is no pre-determined rate on which it will be charged. It fully depends on the decisions of the executives of Accounts Department or the instruction of H/O.

In case of depreciation only the straight-line is to be followed, but there are other methods of charging depreciation, such as-double decline, sum year-digit methods etc are used as method of depreciation. These are not followed by SIBL PRINCIPAL except the straight line method. This department plays a vital role in the management information system. Management collects different types of information from this department.

Number of brunches is very limited of this Bank. They have to increase the number of brunches at various key points of the country.

There should be a Recovery Unit to manage directly accountsØ with sustained deterioration. To encourage Recovery Unit incentive program may also introduced.

Conclusion:

The overall banking operation system of SIBL is satisfactory. Social Investment Bank Limited (SIBL) action program is directed towards development of an authentic participatory Economy beyond Market Economy. The family empowerment credit program of SIBL is gaining ground at the grass root level in Bangladesh. Family empowerment micro credit and micro enterprise program has been designed in a manner so as to make finance, production, marketing, trading, local specific survey and resources as well as moral suasion in one package. In SIBL credit conveys the totality in life and clearly linked to social context and cultural setting in conformity with Sharih.

A banker can not sleep well with bad debts in his portfolio. The failure of commercial banks occurs mainly due to bad loans, which occurs due to inefficient management of the loans and advances portfolio. Therefore any banks must be extremely cautious about its lending portfolio and credit policy. So far Social Bank Limited has been able to manage its credit portfolio skillfully and kept the classified loan at a very lower rate —thanks goes to the standard and stringent credit appraisal policy and practices of the bank.

But all things around us are changing at an accelerating rate. Today is not like yesterday and tomorrow will be different from today. Given the fast changing, dynamic global economy and the increasing pressure of globalization, liberalization, consolidation and disintermediation, it is essential that Social bank limited has a robust credit risk management policies and procedures that are sensitive to these changes. To improve the risk management culture further, Social bank limited should adopt some of the industry best practices that are not practiced currently.

There is a built in provision vertical social mobility with provisioning for social subsidy. It is thus felt that the linking credit to social goals and assignments will have far-reaching implications for development of the alternative concept of new participatory economics in the 21st Century and there by laying the foundation of new theories of income, output and employment.

List Of Abbreviation

BB Bangladesh Bank

CC Cash Credit

CIB Credit Information Bureau

CLP Credit Line Proposal

DD Demand Draft

ECC Export Cash Credit

FCY Foreign Currency

FDR Fixed Deposit Reserve

IBCA Inter Branch Credit Advance

IBDA Inter Branch Debit Advance

ICB Investment Corporation of Bangladesh

IRC Import Registration Certificate

L/C Letter of Credit

MSI Medium Scale Industries

OD Over Draft

OBC Outward for collection

PAD Payment Against Document

PO Payment Order

SSI Small Scales Industries

STD Short Term Deposit

TC Travelers Cheque

TOD Temporary Over Draft

TT Telegraphy Transfer

TIN Tax Identification Number

SLBL Social Investment Bank Limited.