Main purpose of this report is to analysis Operational Activities of Shahjalal Islami Bank Limited, here focus on Islami Banking Activities of this bank. Other objectives are to know about Human Resource Departments Practices of Shahjalal Islami Bank. This report also distinguishing fractures between Islamic and Non-Islamic Bank. finally draw SWOT analysis and suggest recommendation to improve Operational Activities of Shahjalal Islami Bank.
The objectives of this report are:
- To develop the practical knowledge by the practical orientation of work.
- To build up the pillar of the career for near future.
- To know about Shahjalal Islami Bank Limited (SJIBL) operational activities which is based on Islami Shariah.
- To know about Human Resource Departments Practices of SJIBL.
- To know distinguishing fractures between Islamic & Non-Islamic Bank.
Methodology of the Study
Different data and information are required to meet the goal of this report. Those data and information were collected from various sources, such as, primary and secondary which is showed below:
Primary Sources of Data:
The primary data had been collected in various ways. The different sources were:
- Face to face conversations with the employees and opportunities were given by the management to work in relevant fields in SJIBL.
- By personal interviewing and interacting customers at SJIBL.
- Observing various organizational procedures.
Secondary Sources of Data:
- File study.
- Annual report of Shahjalal Islami Bank Ltd.
- Statement of affairs.
- Bank Rate sheet.
- Progress report of the Bank.
- Bangladesh Bureau of statistics report.
- Different publications regarding banking function.
Shahjalal Islami Bank Limited is based on Islami Shariah. SJIBL is named after the name of a saint Hajrat Shahjalal ® who dedicated his life for the cause of preaching Islam in the east-north part of the subcontinent. It was incorporated as a public limited company on 1st April 2001 under companies’ act 1994. It started its banking operation on May 10, with the 1st branch opened at 58, Dilkusha C/A, Dhaka, obtaining the license of Bangladesh Bank, for enlistment of financial condition of its customers as well as to contribute to sustainable economic growth and development in trade and industry of the country. Its corporate head quarter is situated at 10, Dilkusha, C/A, Jiban Bima Bhaban, Dhaka -1000, and Bangladesh. Now it has 21 branches 11 Branches are in Dhaka and rest 10 branches are in Chittagong, Sylhet and Gajipur. The sponsors of SJIBL are leading business personalities and renowned industrialists of the country.
Nature of business
Shahjalal Islami Bank Limited offers services for all banking needs of the customers, which include deposits, making loans & advances, discounting bills, conducting money transfer and foreign Trade transactions and performing other related services such as safe keeping, collections, issuing guarantees, acceptances and letters of credit. Of banking in consonance with the ethos of the value system of Islam.”
The objective of Shahjalal Islami Bank Limited is not only to earn profit but also to keep the social commitment and to ensure its co-operation to the person of all level, to the businessmen, industrialist specially who are engaged in establishing large scale industry by consortium and the agro-based export oriented medium and small scale industries by self inspiration.
SJIBL is always ready to maintain the highest quality of services by upgrading banking technology in management and by applying high standard of business ethics through its established commitment and heritage.
“Would make finest corporate citizen”
SJIBL dreams to become the bank of choice of the general public and it include both the consumer and the corporate clients. They want to build such an image that whenever people will think of a bank, they will think of Shahjalal Islami Bank. SJIBL has created a cadre of young professionals (YP) in banking profession. This has helped boosting productivity in the bank. All officers are now target driven and more focused on banking. Human Resources Management Division that provides training to the officers of the bank to develop their knowledge base about banking activities through training Institute of the Bank.
“Will become most caring, focused for equitable growth based on diversified deployment of resources, and nevertheless would remain healthy and gainfully profitable bank.”
Shahjalal Islami Bank Limited aims to become one of the leading banks in Bangladesh by prudence, flair and quality of operations in their banking sector. The bank has some mission to achieve the organizational goals.
There are different wings to consist the organizational structure of SJIBL. There are –
- Board of Directors
- Board Committees
- Executive Committees
- Policy Committees
- Management Team
Deposit Mobilization of SJIBL
Bank account is a contractual relationship between a bank and the customers. It is the best way for a customer to build relationship with the bank. Like interest-based conventional banks, the main function of Shahjalal Islami Bank Limited (SJIBL) is to mobilize saving and provide financial support to the entrepreneurs. Depositors receive interest in a predetermined rate for their deposits make with an interest based banks, where SJIBL neither pay not receive interest and mobilizes saving of the common people in line with Islamic Shariah.
Deposit account can take in a various forms such as:
- Al – Wadiah Current Deposit (AC)
- Mudarabah Savings Deposit (MSD)
- Short – Notice Deposit (SND)
Al – Wadiah Current Deposit (ACD)
Shahjalal Islami Bank Limited receives deposits in its Al – Wadia Current Account. It has some similarity with the current account of conventional bank. The term Al – Wadiah Current Deposit means deposit of money allowing somebody to sue it. Banks being trustee preserves and keeps or in safe custody of what is deposited. Depositors feel safe in keeping their money with the bank and take transaction facilities. Bank provides assurance of returning money to the depositors on demand. In the process of opening Al-Wadiah Deposit, the bank gets approval of the depositors regarding the use of the deposited money and earns profit out of their development. Any losses incurred by way of such investment are totally borne by the bank. Thus, the depositors don’t take the risk of losses with Al-Wadiah Current Deposit; they also don’t expect any profit from it. Depositors are provided with chequebook. They can withdraw or deposit any amount as and when they like. Bank may charge a fee in the account. Al-Wadiah Deposit are short terms and very uncertain, thus banks have to be very useful in the investment of money from this account.
Mudaraba saving Deposit (MSD)
Mudaraba Saving Deposit (MSD) is open by the lower and middle people who wish to save a part of their incomes to meet their future need intend to earn an income from their savings. It aims at encouraging savings of non-trading persons(s), institution(s), society, etc. by depositing small amount of money in the bank.
Restriction on withdrawals and deposit:
- The number of withdrawals over a period of time is limited. Two withdrawals per week are permitted. But more than that no interest will be paid on rest amount for that month.
- The total amount of one or more withdrawal on any date should not exceed 25% of the in the accounts unless 7 (seven) days advance notice is given.
- The customer may deposit any amount in the savings bank account subject to a minimum of Tk.2000/- in the account.
Payment of Profit:
Shahjalal Islami Bank Limited is proving 5.5% profit on Mudaraba Saving Deposit.
Opening a saving account:
For Operating a Mudaraba Saving Deposit following documentation are required
- Two copies of passport size photographs of accountholder and one copy passport size photo of nominee.
- Introductory reference.
- Commissioner’s/Chairman Certificate.
General Precautions of opening an MSD Account:
After opening an account and before issuing a Cheque book the authorized officer should check the account operating form for the complete information, which is given by the customers.
- Name of the account holder.
- Photos of the account holder.
- Date of opening
- Types of account.
- Present and permanent address
- Name of the nominee and their address.
- Initial deposit
- Specimen signature in the form in the “Specimen signature card”.
- Name, address and the account number of the introducer.
Mudaraba Short Notice Deposit (MSND)
Shahjalal Islami Bank Limited also receives term deposit from the clients. The SND account is different from the interest-based banks. It is also a Time Deposit account. The formalities for opening of this account are similar to those required for Al-Wadiah Current Account. The only difference is that seven (7) days notice is required for withdrawal of any sum and profit is paid. The rate of profit for this account is 5%. If the withdrawal on demand is desired, it may be paid subject to the for-feature for the period of notice or the expired of notice.
The Shahjalal Islami Bank Limited (SJIBL) is containing some Deposit Scheme, which are the really profitable for bank and customer. The Bank maintains Shariah –based transaction with their customer by different Scheme those are
- Monthly Deposit Scheme (MDS)
- Mudarah Term Deposit Receipt (MTDR)
- Monthly Income Scheme (MIS)
- Double Profit Deposit Scheme (DPDS)
- Millionaire Scheme (MS)
- Hajj Palon Scheme (HS)
Monthly Deposit Scheme (MDS/DPS)
This account open very easy and there are no fixed day to open. Account holders do not need any savings account if he/she directly pays their monthly installment. Account holders carefully complete the MDS form and attests two copies passport size photograph one nominee and other own with form. Account holders can pay advance to continue their installment or can give permanent instruction from his/her savings account. In this term, the account holders are bound to pay Tk.50 for transferred and Tk.5/- for service charge. If the account is close before the maturity then profit will be calculate according to saving rates. If a depositor fails to pay calculate as Savings rate. But for the first six-month no profit will be calculate. Nominee will enjoy the profit will in absence of the accountholder. Depositor will get the profit after the matured according to following table:
|Install. period||Tk. 1,000||Tk. 2,000||Tk. 5,000||Tk. 10,000||Tk. 25,000||Tk. 50,000|
Mudaraba Term Deposit Receipt (MTDR)
It is like a fixed deposit in the conventional banking system but it does not receive or accept interest father, this account give profit and collect deposits. In this mode less than that Tk.1 crore or Tk.1 crore and above can be deposited against client will get non-transferable instrument of equal amount. If a customer withdraw his/her money before one month than he/she will not get any kind of profit. On the other hand, after the matured if client don’t withdraw his/her money than it will be auto renewed with imposed profit for the next days. If a depositor would like to withdraw his profit after six months he/she will get the profit accordance with previous years profit rate. After the announced yearly profit or loss, if bank felt in loss posting then the depositor bound to incur the loss. In absence of account holder the selected nominee will get the money. Account holder bound to bear any kind of tax or excise duty according to government circular. The profit rates of this account are:
|Time of Deposit||Up to Tk. 1(one) crore|
Monthly Income Scheme (MIS)
This scheme is very popular in our country, job retreat people opens this scheme. And which people are not able to do business than they are wanting to safe from risk and they open it. It is the scheme for profit earning. In this account depositor can deposit minimum of Tk. 50,000/- and above. Depositor will get Tk500/ against Tk. 50,000/-. And it is the fixed deposit for 3 (three) years. If the accountholder to want to close his/her account before maturity date than he/she will get profit accordance with savings rate that is 5.5%. In the absence of accountholder, the specified nominee will get the whole benefit. The profit rates of this account are:
|Period of Scheme||Taka Per month||Provisional Rate||Remarks|
|3 Years||Tk.1000/- for one lac||12.00%||Credit Account Number is required|
Double Profit Deposit Scheme (DPDS)
The Shahjalal Islami Bank gives the facility to the client by the Islamic Shariah Mudaraba rules and regulations. In this scheme depositors can deposit more than Tk.10, 000 for 6 years and after the maturity date accountholder will receive double than his/her deposited amount. Depositor will get 80% investment facility by deposit the deposit receipt. Bank can invest this amount any sector by the Islamic Shariah rules and regulations. Accountholder are bound to pay any government tax. For opening this account applicant need recent one copy photograph and one copy photograph of nominee. The profit rates of this account are:
|Period of Scheme||Provisional Rate|
It maturity is long than other scheme. Generally this account is designed for children. Here, applicants are the selected people for operating the account on behalf of the accountholder. The depositor should to deposit the account within first 15 days of the month; neither will he/she be designated as debtor to the bank. If 15th date is the off day then the next working day will be schedule date. Accountholder can open more one account this Branch. Depositor will get 80% loan facility against the deposit money. No chequebook will be issued for this account, but the bank will provide deposit book.
The profit rate based on different amount and time are given below:
|Time||Amount Per month||Total Amount And Profit Rate|
|12 years||Tk. 3280/=||Tk.10 Lac|
|15 Years||Tk. 2120/=||Tk.10 Lac|
|20 Years||Tk. 1080/=||Tk.10 Lac|
|25 Years||Tk. 575/=||Tk.10 Lac|
Hajj is compulsory for all who are the ability to hajj at that cause Hajj is important for all. Hajj is the important way for the Islam but many people have the interest but there have no ability. Many people create the ability but at that time they are physically weak. At that cause Shahjalal Islami Bank open this scheme.
Requirements for this scheme:
- Must be age above 18.
- Account holder must be citizen of the Bangladesh.
- Account holder must be need the attested photo with introducer.
- Gradient can maintain their account for the child.
Duration of the scheme:
- This account is duration time is 1 year to 25 year.
- 12 monthly scheme within one year.
Others general banking related issues
General Documentation requires for opening an account:
a) For an Individual Customer:
- Copy the passport, if available or Employer’s Certificate or Commissioner’s Certificate or Letter of Introduction by a person accepted to the Bank.
- TIN Certificate, if applicable.
- Two recent passport size photographs duly attested by the Introducer.
b) For Sole Proprietorship:
- Copy of Trade License.
- Two recent passport size photographs of the proprietor/Signatory duly attested by the Introducer.
- Copy of the passport the proprietor/Signatory, if available Commissioner’s/Chairman’s Certificate or Letter of Introduction by a person accepted to the Bank.
- TIN certificate.
c) For Partnership:
- Copy of Partnership Deed of the Firm.
- List of Partners with their address and phone number.
- Copy of Trade License.
- Extract of Resolution of the Partners of the Firm for opening the account and authorization for its operation duly certified by the managing Partner of the Firm.
- For Registered Partnership, Certificate of Registration of the Firm along with duly certified copy of the Partnership Deed.
- Two recent passport size photographs of each Partner/Signatory duly attested by the Introducer.
- Copy of Passport of each Partner/Signatory, if available or Commissioner’s/Chairman’s Certificate or Letter of Introduction by a person acceptable to the Bank.
- TIN Certificate.
d) Private & Public Limited Company:
- Certified true copy of the Memorandum and Article Association of the Company.
- Certified true copy of Certificate of Incorporation of the Company.
- Certificate true copy of Certificate of Commencement of Business of the Company in case of Public Limited Company.
- Latest list of Directors with address and phone number along with Form XII.
- Extracts of duly adopted Resolution of the Board of Directors of the Company for opening the Account and authorization for its operation duly certified by the Chairman/Managing Director of the Company.
- Copy of Trade License.
- Two recent size photographs of each signatory duly attested by the introducer.
- Copy of the passport of each signatory, if available or Commissioner’s/Chairman’s
- Certificate or Letter of Introduction by a person acceptable to the Bank.
- TIN Certificate.
Shahjalal Islami Bank is computerized and provides the following services some of these services will be introduced soon. Shahjalal Islami Bank Limited introduced a few schemes, which are very popular:
- Online services
- Automated Accounting
- Integrated System
- Signature Verification
- Any Branch Banking
- ATM Services
- POS Services
- SMS Push Pull Services
- Other Delivery Channel Services (to be implemented)
SJIBL VISA Card
Card is considered as a new dimension of product resulting from technological development in the banking arena. In line with our affiliation with VISA International for VISA ATMs and POS, the following two products are launched broadening service products of the Bank to the clients’:
- VISA Electron (SJIBL VISA Debit Card – local)
- VISA Prepaid (SJIBL VISA Prepaid Card)
SJIBL VISA Debit Card: To a customer, “My card, my money” concept is used for Debit Card. Any accountholder of SJIBL can apply for a SJIBL VISA Debit Card against his/her Al-Wadiah Current Deposit (AWCD), Mudaraba Savings Deposit (MSD) or Mudaraba Short Notice Deposit (MSND) Account. He/she is fully authorized to enjoy the benefits of cash withdrawal from ATMs, liberty of shopping, dining, paying utility bills and having access account information through SMS, etc. round the clock.
Activities of Cash Department
Cash department is the most vital department of a bank and it is call blood of a bank. It is a platform to communicate with customers. Cash department receives & pays cash directly.
In the cash department there are following register:
- Vault register
- Cash receive register
- Cash payment register
- Cash balance register
- Rough cash balance book
- Cash remittance register
- Key register
- Cash position memo
There is a procedure of cash in and cash-out from the vault. Also a systematic procedure is maintained for receiving cash through different vouchers and payment against different cheques and vouchers.
Cash is the life of a bank. Different types of from are use for cash deposits for different types of accounts. Cash may be received by the following ways:
- Current of Savings account pay-in-slip
- Credit voucher
- Different types of instrument remittance (TT, DO, PO etc.) are received by respective forms.
- Bills like National Life Insurance Co. Ltd.
- Share collection
- Different types of scheme
Cash is paid in payment counter against the following instrument:
- Cash debit voucher
- Pay Order, DD etc.
- Bank’s expense also paid to outsider through cash debit voucher.
Receive of the cheques with a signature behind it.
- Scrutinize it by an authorized officer.
- Submit to computer-to-computer section for checking the available balance.
- Cancelled & seal up “Pay in Cash” and cancellation through sign up.
- Again submitted to computer section for debiting the party A/C and seal up “Posted”.
- Send to cash counter – payment officer.
- Cash officer checks the cancellation, seal and seal up “Cash Payment”
- Entry the payments register.
- Take another signature of payee behind the cheque and pay cash.
At the end of the transaction:
- Sum of total received
- Sum up total payment
- Total receiving + Opening balance – Total payment = Closing balance for that day & opening balance for the next day.
- Check it with computer sheet.
- Counting cash.
- Entry the cash balance register.
- Write cash position memo with denomination.
Financial Performance of Shahjalal Islami Bank Limited
Shahjalal Islami Bank Limited is a high performing private sector Bank, which further consolidated its position in the market in terms of quality services to the customers and value addition for the shareholders. The Bank made satisfactory progress in all areas of business operation in 2007.
Shahjalal Islami Bank Limited registered an operating profit of Tk 852 million in 2007 compared to Tk 633 million in 2006 after provision including 1% general provision on unclassified loans profit before tax stood at Tk 633 million. Provision for tax for the year amounted to Tk 275 million with a net profit of Tk 358 million compared to the previous years Tk 269 millions earning Per share increased to Tk 60.57 in 2007 registering a 15% growth over previous year return on assets of SJIBL was 1.27% in 2007 which might be considered quite satisfactory. The trend of growing profit of the last five years is shown by using the following graphical presentation.
As a December 31 2006 total Deposit of the Bank stood at Tk 22575 million excluding call overnight against Tk 16851 million of the previous year registering a 34% growth. At the same time, strict compliance of the central Bank regulations and adherence of Money Laundering prevention Act 2002 ensured. In the year 2007 SJIBL emphasized on lowering the rate of interest on Deposits to achieve a lower cost of funds. The Initiative is intended on encourage investment at Lower rate of interest. The growing Position of deposits of the Last Five years is presented by the following manner.
Deposit and other account:
|S.I||Mode of Deposit||2006||2007|
|01||Al-wadiah current Deposits other account||1467851880||925604924|
|03||Mudaraba saving Deposits||982699419||1039882525|
|04||Mudaraba Term Deposits||8157604109||6846747092|
|05||Other Mudaraba Deposits||4279590188||3211001942|
Credit Policy of Shahjalal Islami bank Limited
Shahjalal Islami bank Limited credit policy contains the views of total macro-economic development of the country as a whole by way of providing financial support to the Trade, Commerce and Industry. Throughout its credit operation Shahjalal Islami Bank Limited goes to every possible corners of the society. They are financing large and medium scale business house and industry. At the same time they also takes care entrepreneurs through its operation and lease finance and Micro-Credit, Small Loan Scheme etc. As a part of its credit policy Shahjalal Islami Bank Limited through its credit operation maintains commitment for social welfare. The bank is coming up with a scheme where the under privileged children will be given financial support for education and self-employment
|Mode of investment||2006||2005|
|Mudaraba, Bai Muajjal||11995292937||10211090674|
Commercial banking is the core activities of Shahjalal Islami Bank Limited. The banks serve all types of customer ranging from individual to corporate entities, both private and public.
The Standard Services Offered by Shahjalal Islami Bank Limited Include
- One Counter Service for all banking needs of the customer.
- Customer counseling.
- Personalized services and relationship banking.
- Deposit banking.
- Loan and advances.
- Export and import financing
- Inland and foreign remittance facilities.
Long Term Target Services of Shahjalal Islami Bank Limited Include:
- Investment banking supported technology transfer program.
- Leasing and lease financing.
- Capital market operation.
To Reach the Objectives, SJIBL has its Basket of Services among Others:
- In house know how for feasibility study and strategic planning.
- Automated and computerized offices.
- Global network banking facilities.
Foreign Exchange Business
Total Foreign Exchange Business handle during the year 2007 stood at Tk. 3.671 million. The particulars of Foreign Exchange Business are given below:
|Particulars||Amount in Million Taka||Percentage of Total|
During the year 2007Bank branches opened 1,265 Import Letter of Credit as 160 of 2006and handle a good number of Export bills.
One of the major businesses of the Bank is foreign exchange dealing. The Bank earned a substantial amount from the foreign exchange business operations. Treasury operations are deals in the money market of Islamic Banks and maintain the Statutory Liquidity Ratio (SLR) and Cash Reserve Requirement (CRR) with Bangladesh Banks as requirement.
- Investment Income:
Total Investment Income of the Bank as at 31st December 2006 was Tk. 109 million as against Tk. 27 million of the preceding year registering 259% growth over last year, which was 66% of the total income compare to 68% of 2005.
- Non-Investment Income:
Total non-investment income of the bank as at 31st December 2006 was Tk. 109 million as against Tk. 27 million of the presenting year registering 304% growth over last year, which was 34% of the total income compared to 32% of 2005.
Profit Paid on Deposits:
Bank distributed profit of Tk. 141 million against Tk. 47 million of 2005 among the Mudaraba Deposit in the year 2006 being 68% of the investment income earned from deployment of Mudaraba fund.
Total opening expense as on 31-12-2006 was Tk. 80 million as against Tk. 222 million, resulting a total opening profit of Tk. 95 million up to 31-12-2006 as against 7 million in 2005.
(Amount in Million Taka)
|Less: Total Expenditure||221.67||77.15|
|Net Profit before Tax||94.87||7.38|
|Less: Provision Against Investment||17.83||2.17|
|Less: Provision for Taxation||30.81||2.95|
Modes of Investment of SJIBL
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. Specific examples of financial investments are: deposits of money in a bank account, the purchase of Mudaraba Savings Bonds or stock in a company. Since Islam condemns hoarding savings and a 2.5 percent annual tax (Zakat) is imposed on savings, the owner of excess savings, if he is unable to invest in real assets, has no option but to invest his savings in financial assets.
Objectives and Principles of Investment
The objectives and principles of investment operations of the Bank are:
- To invest fund strictly in accordance with the principles of Islamic Shariah.
- To diversify its investment portfolio by the size of investment, by sectors (public & private), by economic purpose, by securities and by geographical area including industrial, commercial, and agriculture.
- 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 thereof.
- 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 development schemes for poverty alleviation, income and employment generation with a view to accelerating sustainable socio-economic growth and uplift of the society.
- To invest in the form of goods and commodities rather than give out cash money to the investment clients.
Investment Modes of SJIBL
When money is deposited in the SJIBL , the bank, in turn, makes investments in different forms approved by the Islamic Shariah with the intention to earn a profit. Not only a bank, but also an individual or organization can use Islamic modes of investment to earn profits for wealth maximization. Some popular modes of SJIBL ’s Investment are discussed below.
BAI-MURABAHA(Contract Sale on Profit)
Meaning of Murabaha
“Bai-Murabaha” means sale for an 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 an agreed upon profit payable today or on some date in the future in lump-sum or by installments. The profit may be either a fixed sum or based on a percentage of the price of the goods.
Features of Murabaha
- A client can make an offer to purchase particular goods from the bank for a specified agreed upon price, including the cost of the goods plus a profit.
- A client can make the promise to purchase from the bank, that is, he is either to satisfy the promise or to indemnify any losses incurred from the breaking the promise without excuse.
- It is permissible to take cash/collateral security to guarantee the implementation of the promise or to indemnify any losses that may result.
- Documentation of the debt resulting from Bai-Murabaha by a Guarantor, or a mortgage, or both like any other debt is permissible. Mortgage/Guarantee/Cash Security may be obtained prior to the signing of the Agreement or at the time of signing the Agreement.
- The bank must deliver the goods to the client at the date, time, and place specified in the contract.
- The bank sells the goods at a price above the cost to obtain a profit. The sale price that is charged by the bank is agreed upon in the Bai-Murabaha. The profit can be stated in terms of a flat dollar amount or on a percentage of the purchase price. If a percentage is used, the percentage shall never be expressed in terms of time, in order to avoid confusion that the price is a form of interest (Riba), which is not allowed.
- The price agreed to in the agreement is binding on both parties.
- It is permissible for the bank to contract with a third party to buy and receive the goods on its behalf. This agreement must be a separate contract.
Steps of Bai-Murabaha
First Step: The client submits a proposal regarding his requirements of the bank. The client sends a proposal with the specifications of the commodity to be acquired from the bank. The proposal also indicates details regarding the date, time and place of delivery as well as price and form of payment information. The bank responds by sending a counter proposal either accepting the buyer’s price or stipulating a different price.
Second Step: The client promises to buy the commodity from the bank on a Bai–Murabaha basis, for the stipulated price. The bank accepts the order and establishes the terms and conditions of the transaction.
Third Step: The bank informs the client (ultimate buyer) of its approval of the agreement to purchase. The bank may pay for the goods immediately or in accordance with the agreement.
The seller expresses its approval to the sale and sends the invoice(s).
Fourth Step: The two parties (the bank and the client) sign the Bai–Murabaha Sale contract according to the agreement to purchase.
Fifth Step: The Bank authorizes the client or its nominee to receive the commodity.
The seller sends the commodity to the place of delivery agreed upon. The client undertakes the receipt of the commodity in its capacity as legal representative and notifies the bank of the execution of the proxy.
Rules of Bai-Murabaha
- It is permissible for the client to offer to purchase a particular commodity, deciding its specifications and committing itself to buy it on Murabaha for the cost plus the agreed upon profit.
- It is permissible that the mutual agreement shall contain various conditions agreed upon by the two parties, especially with respect to the place of delivery, the payment of a cash security to guarantee the implementation of the operation and the method of payment.
- It is permissible to stipulate the binding nature of the promise to purchase. Thus, the agreement can only be satisfied by either fulfilling the promise to purchase or by indemnifying the bank for any losses incurred if the promise to purchase is not fulfilled.
- It is a condition that the bank purchases the requested commodity (first purchase contract) before selling it on Murabaha to the buyer. The contract in the first purchase must be settled, in principle, between the source seller and the bank.
- It is permissible for the bank to authorize a second party including the buyer to receive the commodity on its behalf. This authorization must be in a separate contract, particularly if the buyer is going to receive the goods on behalf of the bank. This is necessary to avoid any conflicts with the ensuing Murabaha sale.
- Once the bank takes ownership of the goods, it is responsible for any damages or defects. Thus, if the goods are damaged, the bank is liable and must repair the damage prior to delivering the goods to the purchaser.
- It is a condition that the Bai-Murabaha contract be drawn at the last phase. That is after the promise to purchase and the purchase of the commodity in the name of the bank and receipt of the commodity directly by the bank or through an agent.
- The legal rules of Bai-Murabaha must be observed in drawing the contract of the Murabaha sale connected with a promise to purchase. Particularly concerning the issue of the transparency of the cost of the first purchase and the amount of profit because discrepancies lead to disputes, which may invalidate the contract.
- It is permissible to document the debt resulting from Bai-Murabaha by a guarantor or a mortgage, like any other sale on credit. Further, it is permissible that the mortgage accompanies the contract, because it is possible to take a mortgage on actual debt as well as promised debt before it is realized. However, the mortgage shall only be in effect if the debt is actually incurred.
Application of Bai-Murabaha
Murabaha is the most frequently used form of finance in IBBL throughout the world. It is suitable for financing the different investment activities of customers with regard to the manufacturing of finished goods, procurement of raw materials, machinery, and other required plant and equipment purchases. It is used widely about 53%.
BAI-MUAJJAL (Deferred Sale)
Meaning of Bai-Muajjal
The Bai-Muajjal may be defined as a contract between a buyer and a 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 in fixed installments.
Features of Bai-Muajjal
- It is permissible and in most cases, the client will approach the bank with an offer to purchase a specific good through a Bai-Muajjal agreement.
- It is permissible to make the promise binding upon the client to purchase the goods from the bank.
- It is permissible to take cash/collateral security to guarantee the implementation of the promise or to indemnify the bank for damages caused by non-payment.
- It is also permissible to document the debt resulting from Bai-Muajjal by a Guarantor, or a mortgage or both, like any other debt. Mortgage/Guarantee/Cash security may be obtained prior to the signing of the Agreement or at the time of signing the Agreement.
- All goods purchased on behalf of a Bai-Muajjal agreement are the responsibility of the bank until they are delivered to the client.
- The bank must deliver the goods to the client at the time and place specified in the contract.
- The bank may sell the goods at a higher price than the purchase price to earn profit.
- The price is fixed at the time of the agreement and cannot be altered.
- The bank is not required to disclose the profit made on the transaction.
The following points should receive attention before making any investment decision under Bai-Muajjal.
- Whether the goods that the client intends to purchase are marketable and have steady demand in the market.
- Whether the price of the goods is subject to frequent and violent changes.
- Whether the goods are perishable in short or in long-term duration.
- Whether the quality and other specifications of the goods as desired by the client can be ensured.
- Whether the goods are available in the market and the bank will be in a position to purchase the Goods in time and at the negotiated price.
- Whether the sale price of the goods is payable by the client at the specified future date in lump sum or in Installments as per the agreement.
HIRE-PURCHASE UNDER SHIRKATUL MELK
Hire-Purchase under Shirkatul Melk has been developed through practice. Actually, it is a synthesis of three contracts: (a) Shirkat; (b) Ijarah, and (c) Sale. These may be defined as follows:
Definition of Shirkatul Melk: ‘Shirkat’ means partnership. Shirkatul Melk means share in ownership. When two or more persons supply equity, purchase an asset and own the same jointly and share the benefit as per agreement and loss in proportion to their respective equity, the contact is called Shirkatul Melk. In the case of Hire Purchase under Shirkatul Melk, SJIBL purchase assets to be leased out, jointly with client under equity participation, own the same and share benefit jointly till the full ownership is transferred to the client.
Definition of Ijara: The term ‘Ijara’ has been defined as a contract between two parties, the lessor and the lessee, where the lessee enjoys or reaps a specific service or benefit against a specified consideration or rent from the asset owned by the lessor. It is a lease agreement under which a certain asset is leased out by the lessor or to a lessee against specific rent or rental for a fixed period.
Definition of Sale contract: This is a contract between a buyer and a seller under which the onwnership of certain goods or asset is transferred by the seller to the buyer against agreed upon price paid by the buyer. In the case of Hire Purchase under Shirkatul Melk, the lessor bank sells or transfers its title to the asset under a sale contract on payment of sale price.
Stages of Hire Purchase under Shirkatul Melk
Hire Purchase under Shirkatul Melk Agreement has got three stages:
- Purchase of asset under joint ownership of the lessor and the lessee.
- Hire, and
- Sale and transfer of ownership by the lessor to the other partner – lessee.
- In case of Hire Purchase under Shirkatul Melk transaction the asset/property involved is jointly purchased by the lessor (bank) and the lessee (client) with specified equity participation under a Shirkatul Melk contract in which the amount of equity and share in ownership of the asset of each partner (lessor bank and lessee client) are clearly mentioned. Under this agreement the lessor and the lessee become co-owners of the asset under transaction in proportion to their respective equity.
- In Hire Purchase under Shirkatul Melk Agreement the exact ownership of both the lessor (bank) and lessee (client) must be recognized. However, if the partners wish and agree the asset purchased may be registered in the name of any one of them or in the name of any third party clearly mentioning the same in the Hire Purchase Shirkatul Melk Agreement.
- The share/part of the purchased asset owned by the lessor (bank) is put at the disposal possession of the lessee (clients) keeping the ownership with him for a fixed period under a hire agreement in which the amount of rent per unit of time and the benefit for which rent to be paid along with all other agreed upon stipulations are clearly stated. Under this agreement the lessee (client) becomes the owner of the benefit of the asset not of the asset itself, in accordance with the specific provisions of the contract that entitles the lessor (bank) the rentals.
- As the ownership of leased portion of asset lies with the lessor (bank) and rent is paid by the lessee against the specific benefit, the rent is not considered as price or part of price of the asset.
- In the Hire Purchase under Shirkatul Melk agreement the Lessor (bank) does not sell or the lessee (client) does not purchase the asset but the lessor (bank) promise to sell the asset to the lessee only if the lessee only if the lessee pays the cost price/equity price of the asset as fixed and as per stipulations on which the lessee also gives undertakings.
- The promise to transfer legal title by the lessor and undertakings given by the lessee to purchase the ownership of leased asset upon payment part by part as per stipulations are affected only when it is actually done by a separate sale contract.
- As soon as any part of lesssor’s (bank’s) ownership of asset is transferred to the lessee (client), that becomes the property of the lessee and hire contract for that share/part and entitlement for rent thereof lapses.
- The hire contract becomes effective from the day on which the lessor transfers the possession of the leased asset in good order and usable condition, so that the lessee may make use of the same as per provisions of the agreement.
- Effectiveness of the sale contract depends on the actual sale and transfer of ownership of the asset by the lessor to the lessee.
MUDARABA (Investment made by the entrepreneur)
Definition of Mudaraba
The term Mudaraba refers to a contract between two parties in which one party supplies capital to the other party for the purpose of engaging in a business activity with the understanding that any profits will be shared in a mutually agreed upon. Losses, on the other hand, are the sole responsibility of the provider of the capital. Mudaraba is also known a Qirad and Muqaradah
Steps of Mudaraba
The bank provides the capital as a capital owner. The Mudarib provides the effort and expertise for the investment of capital in exchange for a share in profit that is agreed upon by both parties.
- The Results of Mudaraba: The two parties calculate the earnings and divide the profits at the end of Mudaraba. This can be done periodically in accordance with the terms of the agreement, subject to the legal rules that apply.
- Payment of Mudaraba Capital: The bank recovers the Mudaraba capital it contributed before dividing the profits between the two parties because the profit is considered collateral for the capital.
- Distribution of wealth resulting from Mudaraba: In the event a loss occurs, the capital owner (the bank) is responsible for the entire loss. In the event of profits, they are divided between the two parties in accordance with the agreement between them, subject to the capital being recovered first.
Rules of Mudaraba
There are some legal rules that govern the business relationship Mudaraba which are as follows.
- It is a condition in Mudaraba that the capital be specific in nature. In other words, the amount of capital must be known at the inception of the contract. The purpose of this rule is to ensure that there is no uncertainty about the amount of capital and, thus, no uncertainty about the division of profits.
- It is a condition that capital must be in the form of currency in circulation. However, merchandise can be contributed, so long as both parties to the business arrangement agree upon its value.
- It is a condition that the capital cannot be subject to indebtedness.
- It is permissible for a Mudarib to mix his private capital with the capital of the Mudaraba, thus becoming a partner. In addition, it is also permissible for the Mudarib to dispose of capital on behalf of the Mudaraba.
- It is a condition that the capital of the Mudaraba is delivered to the Mudarib.
- It is permissible to impose restrictions on the Mudarib as long as the restriction is beneficial and does not hinder the agent’s ability to make a profit.
- It is permissible for the Mudarib to hire an assistant to perform difficult work that he is unable to perform on his own.
MUSHARAKA (Partnership based investment)
Meaning of Musharaka
The word Musharaka is derived from the Arabic word Sharikah meaning partnership. At an SJIBL , a typical Musharaka transaction may be conducted in the following manner.
One, two or more entrepreneurs approach an SJIBL to request the financing required for a project. The bank, along with other partners, provides the necessary capital for the project. All partners, including the bank, have the right to participate in the project. They can also waive this right. The profits are to be distributed according to an agreed ratio, which need not be the same as the capital proportion. However, losses are shared in exactly the same proportion in which the different partners have provided the finance for the project.
BAI-SALAM (Advance payment)
Meaning of Bai-Salam
Bai-Salam is a term used to define a sale in which the buyer makes advance payment, but the delivery is delayed until sometime in the future. Usually the seller is an individual or business and the buyer is the bank.
The Bai-Salam sales serve the interests of both parties.
- The seller receives advance payment in exchange for the obligation to deliver the commodity at some later date. He benefits from the Salam sale by locking in a price for his commodity, thereby allowing him to cover his financial needs whether they are personal expenses, family expenses or business expenses.
- The purchaser benefits because he receives delivery of the commodity when it is needed to fulfill some other agreement, without incurring storage costs. Second, a Bai-Salam sale is usually less expensive than a cash sale. Finally a Bai-Salam agreement allows the purchase to lock in a price, thus protecting him from price fluctuation.
Steps of Bai-Salam
- Cash sale or Sale on Credit – The bank pays the agreed upon price at the time of the contracts inception. The seller agrees to the delivery of the commodity some specified date in the future.
- Delivery and Receipt of the Commodity on the Specific due Date: There are several options for delivery available to the bank
- a) The bank may receive the commodity and resell it to another party for cash or credit.
- b) The bank may authorize the seller to find another buyer for the commodity.
- c) The bank may direct the seller to deliver the commodity directly to a third party with whom the bank has entered into another agreement.
- The Sale Contract: The bank agrees to sell the commodity for cash or a deferred price, which is higher than the Salam purchase price. The buyer agrees to purchase and to pay the price according to the agreement.
Rules of Bai-Salam
- It is a condition that the commodity known by both parties to the agreement.
- It is a condition that the quality of the commodity be monitored closely, as very little variation from specifications in the contract is allowable.
- It is a condition that the commodity be deliverable on the due date. If there is uncertainty about the ability to deliver the commodity at the due date, a Salam transaction is impermissible.
- It is permissible to draw a Salam sale contract for a total to be delivered increments on different specified future dates.
- It is a condition that the commodity is a liability debt. The seller is obliged to deliver the commodity when it is due, according to the specifications stipulated in the contract, whether or not his firm produces the commodity or obtained from other firms.
- Salam sales are impermissible on existing commodities because damage and deterioration cannot be assured before delivery on the due date.
Application of Bai-Salam
Salam sales are frequently used to finance the agricultural industry. Banks advance cash to farmers today for delivery of the crop during the harvest season. Thus banks provide farmers with the capital necessary to finance the cost of producing a crop. Salam sale are also used to finance commercial and industrial activities. Once again the bank advances cash to businesses necessary to finance the cost of production, operations and expenses in exchange for future delivery of the end product. In the meantime, the bank is able to market the product to other customers at lucrative prices. In addition, the Salam sale is used by banks to finance craftsmen and small producers, by supplying them with the capital necessary to finance the inputs to production in exchange for the future delivery of products at some future date.
Definition of Istisna’a Sale
The Istisna’a sale is a contract in which the price is paid in advance at the time of the contract and the object of sale is manufactured and delivered later. It is a contract with a manufacturer to make something and it is a contract on a commodity on liability with the provision of work. SJIBL can utilize Istisna’a in two ways.
- It is permissible for the bank to buy a commodity on Istisna’a contract then sell it after receipt for cash or deferred payment.
- It is also permissible for the bank to enter into a Istisna’a contract in the capacity of seller to those who demand a purchase of a particular commodity and then draw a parallel Istisna’a contract in the capacity of a buyer with another party to manufacture the commodity agreed upon in the first contract.
Steps of Istisna’a Sale
Istisna’a Sale Contract: The Buyer expresses his desire to buy a commodity and brings a request to purchase the commodity to the bank. The method of payment, whether cash or deferred is set forth in the agreement. The bank agrees to deliver the commodity to the buyer at some agreed upon time in the future.
Delivery and Receipt of the Commodity: The seller in the parallel Istisna’a agreement, delivers the commodity to the bank on the agreed upon date. The bank, in turn, delivers the product to the buyer of the original Istisna’a contract, in accordance with the original agreement. In this way, all parties fulfill their obligations to the contract.
Application of Istisna’a Sale
The Istisna’a contract allows SJIBL to finance the public needs and the vital interests of the society to develop the Islamic economy in accordance with Islamic teachings. For example Istisna’a contracts are used to finance high technology industries such as the aviation, locomotive and ship building industries. In addition, this type of business transaction is also used in the production of large machinery and equipment manufactured in factories and workshops. Finally, the Istisna’a contract is also applied in the construction industry such as apartment buildings, hospitals, schools, and universities to whatever that makes the network for modern life. One final note, the Istisna’a contract is best used in those transactions in which the product being purchased can easily be measured in terms of the specified criteria of the contract.
Definition of Ijarah
According to Islamic Shariah, Ijarah is a contract between two parties – the lessor and the lessee, where the lessees (Hirer or Mustajir) have the right to enjoy/reap a specific benefit against a specified consideration/rent/wages from the lessor – the owner (Muajjir).
Elements of Ijarah
According the majority of Fuqaha, there are three general and six detailed elements of Ijarah:
- The wording: This includes offer and acceptance.
- Contracting parties: This includes a lessor, the owner of the property, and a lessee, the party that benefits from the use of the property.
- Subject matter of the contract: This includes the rent and the benefit.
The lessor (Mujjir) – The individual or organization who leases out/rents out the property or service is called the lessor.
The lessee: (Mustajir) – The individual or organization who hires/takes the lease of the property or service against the consideration rent/wages/remuneration is called the lessee (Mustajir).
The Benefit (Maajur) – The benefit that is leased/rented out is called the benefit (Maajur).
The rent (Aj’r or Ujrat) – The consideration either in monetary terms or in quantity of goods fixed to be paid against the benefit of the goods or service is called the rent or Ujrat or Aj’r.
Rules for Ijarah
It is condition that the subject (benefit/service) of the contract and the asset (object) should be known comprehensively.
- It is a condition that the assets to be leased must not be a fungible one (perishable or consumable) which cannot be used more than once, or in other words the asset(s) must be a non-fungible one which can be utilized more than once, or the use/benefit/service of which can be separated from the assets itself.
- It is a condition that the subject (benefit/service) or the contract must actually and legally be attainable/derivable. It is not permissible to lease something, the handing-over of the possession of which is impossible. If the asset is a jointly owned property, any partner, according to be majority of the jurists, may let his portion of the asset(s) to co-owner(s) or the person(s) other than the co-owners. However, it is also permissible for a partner to lease his share to the other partner(s),
- It is a condition that the lessee shall ensure that he will make use of the asset(s) as per provisions of the Agreement or as per customs/norms/practice, if there is no expressed provision.
- The lessor is under obligation to enable the lessee to the benefit from the assets by putting the possession of the asset(s) at his disposal in useable condition at the commencement of the lease period.
- In a lease contract, the period of lease and the rental to be paid in terms of time, place or distance should be clearly stated.
- It is a condition that the rental falls due from the date of handing over the asset to lessee and not from the date of contract or use of the assets.
Investment Performance of SJIBL
Sources of Funds
The financial resources of the SJIBL consist of ordinary capital resources comprising paid-up capital and reserves, and funds rose through borrowings from the central bank and other banks (inter-bank borrowing), and issue of Islamic financial instruments. The major part of their operational funds is, however, derived from the different categories of deposits accepted on the Islamic principles of Al-Wadiah (safe custodianship) and Mudaraba (trust financing). For the sake of ease of understanding we call these two sources as ‘Primary’ and ‘Secondary’. These are discussed as under.
SJIBL is public limited companies incorporated under the companies Act, which are listed on the Stock Exchange. Individuals and institutions, local and foreign, have subscribed their capital. For example, the First SJIBL of Bangladesh – Shahjalal Islami Bank Limited (SJIBL)- is a joint venture of Bangladesh and overseas capital in the ratio of 38:62. Its local capital is owned by the Government of Bangladesh and private individuals and institutions. The overseas capital (62%) of the bank is owned by the institutions and individuals as follows.
i) Islamic Development Bank, Jeddah, Saudi Arabia
ii) Kuwait Finance House, Kuwait
iii) BahrainSJIBL , Bahrain
iv) Jordan SJIBL, Jordan
v) Al-Rajhi Company for Currency Exchange and Commerce, Saudi Arabia
vi) Dubai Islami Bank, UAE
vii) Islamid Investment and Exchange Corporation, Qatar
viii) Ministry of Awqaf and Islamic Affairs, Kuwait
ix) The Public Authority for Minor Affairs, Ministry of Justice, Kuwait
x) Public Institution for Social Security, Kuwait
xi) Ahmed Salah Jamjoom, Saudi Arabia
xii) Fouad Abdul Hameed Al-Khateeb, Saudi Arabia
xiii) SJIBL System International holding S. A. Luxembarg
The capital resources of the SJIBL is mobilized through the issue of shares for which negotiable share certificate are used. With prior permission from the Government, shares are issued from time to time. Laws governing the shares correspond to the Musharaka laws of Shariah. The holders of shares have management (voting) right and participate in the profit/loss of the bank. The shares are transferable. In the case of the IBBL, its entire capital is denominated in the local currency – i.e. Taka, though the foreign shareholders had to pay for their shares in US Dollars.
The central bank also requires that every SJIBL shall maintain a reserve fund. Before any dividend is declared, SJIBL transfers to the reserve fund out of the net profits of each year, after due provision has been made for Zakat and taxation, a certain percentage of the net profits in order to build up adequate reserves. If the central bank is satisfied that the aggregate reserve fund of an SJIBL is adequate for its business, it may by order in writing exempt the bank from this requirement for a period of one year. In Bangladesh, the SJIBL besides maintaining the statutory reserve, has built up an Investment Loss Offsetting Reserve (ILOR) by appropriating 10 (ten) percent of the bank’s annual investment profits.
SJIBL is further required to keep at all times minimum amount of liquid assets against its deposit liabilities expressed as certain percentage of the deposits, as may be prescribed from time to time by notice in writing by the central bank. For this purpose, liquid assets mean (i) cash in bank, (ii) balances with the central bank/other designated banks, (iii) Government Investment Certificates, and (iv) such other assets as may be approved by the central bank. Failure to keep the minimum liquid assets invokes penalty for each day of deficiency.
Borrowing From Central Bank
To tide over temporary liquidity shortages SJIBL, as member bank, is entitled to borrow from the central bank, as the lender of last resort. In such cases, SJIBL does not pay interest like the conventional banks. Such borrowing from the central bank is treated as a PLS deposit with the SJIBL and profit is paid at the rate payable on corresponding PLS deposit of the bank.
The SJIBL has established interest-free fund arrangements with local and foreign banks on the basis of reciprocity. Normally, under prior arrangement, the SJIBL keep surplus funds with selected banks. When needed, these banks also place interest-free compensating balance with the SJIBL. If balances are not equal, then periods for which funds placed are adjusted.
(MOBILIZATION OF DEPOSITS)
Like interest-based conventional banks, the main function of SJIBL is to mobilize savings and provide financial support to the entrepreneurs. Yet there are differences in techniques applied in the process of savings mobilization and financing investment by the two banking systems. Depositors receive interest in a predetermined rate for their deposits made with an interest-based bank. Similarly, the investors are to pay a predetermined rate of interest to the bank. The technique, thus, involves each and every partner in the transaction process (i.e. the depositor, the investor and the bank) with the element of interest. SJIBL, on the other hand, neither pays nor receives interest from any of its transactions thereby saving everybody from the curse of interest.
Islam disapproves hoarding of savings and encourages its productive investment. It puts emphasis on savings and the productive use of savings. Thus, the bank assembles the small deposits and savings of individuals into a common pool and makes these deposits available for large investment opportunities, ensuring the productive use of society’s savings.
SJIBL is a response to such demand. It mobilizes savings of the common people in line with Islamic Shariah. Techniques employed by SJIBL for saving mobilization are as follows.
SJIBL receives deposit in their Al-Wadiah account. The term Al-Wadiah means deposit of money allowing somebody to claim the funds in the account. The bank as trustee preserves and safe keeps the funds deposited. Thus, depositors feel safe keeping their money with the bank because the bank provides assurance of returning their money on demand.
General Mudaraba Account
General Mudaraba account, which does not have a specified term and is not restricted to being invested in specific project. In addition, deposits may be taken out of the General Mudaraba account on relatively short notice.
Term Mudaraba Account
Term Mudaraba account. Just as the name suggests, this account is a time like deposits with a specified maturity, but is similar to the General account in that it is not restricted to specific projects.
Special Mudaraba Account
These accounts can either be readily liquid like the General accounts or fixed for a specific term like the Term accounts. In addition, these accounts are invested into specific projects or industry, which is stipulated in the contract.
Five Years’ Performance of SJIBL
(Amount in million Taka)
(Including bills payable) Gross
|Total Investments (Including Inv in Share) Gross||62,755.90||83,893.63||102145||117132.83||165286.32|
|Total Foreign Exchange Business||84,643.00||112,665.00||147,642.00||201822.00||287919.00|
|Net Profit before Tax||802.01||1842.99||2162.42||2908.67||3780.82|
|Payment to Government (Income Tax)||426.61||829.35||973.09||1490.12||1700.77|
|Dividend||20% (Stock)||20% (Stock)||25%(Stock)||25% (15%Cash)||25%|
|Total Assets (including Contra)||98,046.85||125,776.94||150959.66||188115.27||250634.48|
|Total Assets (Excluding Contra)||81,704.74||102149.28||122880.35||150252.82||191362.35|
|No. of deposit account holder||19,94266||22,91269||2705180||3032658||3560013|
|No. of investment account holder||22,3954||26,4863||297943||331456||372846|
|Cumulative amount of disbursement from RDS||2923.60||4216.77||6033.36||6832.40||7490.10|
|Outstanding Investment of RDS||570.9||789.97||–|| |
|RDS no. of A / C holder||130,465||163,465||164116||193119||246574|
|RDS no. of village||3700||4230||4560||4850||5200|
|Number of Foreign Correspondents||840||850||860||870||884|
|Number of Shareholders||14,196||15,892||17201||20960||26488|
|Number of Employees||3,752||4,261||4906||7459||8426|
|Number of Branches||141||151||169||176||186|
|Book value per Share ( Taka)||2181||2257||3013||3020||4147|
|Earning per Share (Taka)||195.92||518.59||487.57||368.42||539.00|
|Market Value per Share (Taka) (Highest)||2595||4833||5580||4749||6999|
|Capital Adequacy Ratio||9.43%||9.21%||9.44||9.43||11.18|
Trend of Investment
Investment of the bank increased to Tk. 144921 million as on 31st December 2007 from Tk. 113575 million as 31st December 2006 showing an increase of Tk. 31346 million, i.e., 27.60% growth as against 17.24% growth of investment of the Banking sector. This increased investment growth of the bank in 2007 is due to the thrust given to promote investment for effective utilization of depositors’ fund. The share of investment of SJIBL in banking sector as on 31st December 2007 increased to 8.27% from 7.67% as on 31st December 2006.
Outstanding amount of investment as at the yearend under different schemes are as under:
(Amount in Million Taka)
|SL. No.||Name of Scheme||2005||2006||2007|
|(1)||Rural Development Scheme||1106.47||2242.22||2884.66|
|(2)||Household Durables Scheme||782.09||699.95||742.80|
|(3)||Investment Scheme for Doctors||64.42||33.38||23.64|
|(4)||Transport Investment Scheme||2947.38||2698.88||2624.24|
|(5)||Car Investment Scheme||27.75||23.54||31.46|
|(6)||Small Business Investment Scheme||629.81||768.45||876.34|
|(7)||Micro-Industries Investment Scheme||10.21||6.24||35.79|
|(8)||Agricultural Implements Investment Scheme||12.53||11.94||13.61|
|(9)||Housing Investment Scheme||609.78||506.75||485.29|
|(10)||Real Estate Investment Program||5859.75||6582.85||6903.09|
Sector-Wise & Mode-Wise Investments
Sector-wise distribution of investment as on 31st December 2007 vis-à-vis the correspondent period of last year is given below:
(Amount in Million Taka)
|Amount||% of Total Investment||Amount||% of Total Investment|
(Amount in Million Taka)
|Amount||% to Total Investment||Amount||% to Total Investment|
|Hire Purchase under Shirkatul Melk||39399||34.69||50201||34.64|
|Purchase & Negotiation||4847||4.27||11040||7.62|
Private Non-commercial Remittances
Remittance and Other Facilities for Foreign Nationals:
Family Remittance Facility
Foreign nationals who are resident in Bangladesh and have income in Bangladesh are permitted to make monthly remittances to the country of their domicile out of their current savings up to 50% of their net income to cover their commitments abroad.
This remittance facility is not available to foreign born wives of Bangladesh nationals.
The branch that receives the pay cheques from the employer for credit of the personal account of the foreign national shall process and approve such remittance applications. A certificate as per Appendix 5/56 of BB Guidelines for Foreign Exchange Transactions, 1996 along with TM Form and attested copy of the employment contract duly approved by the BOI or other relevant Government authority (renewed/revalidated up to date, where needed) should accompany the application.
Remittance of Sale Proceeds of Assets
Application for remittance of sale proceeds of real assets such as household articles and real estates should be forwarded to the Bangladesh Bank with the following documents/certificates:
Statement of sale proceeds realized in respect of locally purchased articles of value Tk. 500 or more mentioning:
- Purchase price
- Date of purchase
- Date of sale, and
- Sale proceeds realized
Relative sale receipts or their certified true copies should be produced.
A statement of sale proceeds realized in respect of articles imported/brought from abroad of value Tk. 500 or more mentioning (a) description, (b) landed cost in Bangladesh, (c) date of import, (d) date of sale, (e) sale proceeds realized.
Relative import documents and relative sale receipts or their certified true copies Should be produced.
Application and Supporting Documentation
Application as per pro-forma at Appendix 5/55 of BB Guidelines for Foreign Exchange Transactions, 1996 duly filled in by the applicant and his employer should be accompanied by:
- TM form signed by the applicant;
- A certificate from the employer showing:
- Net salary and allowances for each year,
- Provident Fund and leave salary paid on retirement,
- Bonus and other gratuitous payments for each year.
- Cost of passage, if any, for self and family is payable by the employer.
- A certified true copy of the employment contract approved by BOI/ appropriate Department of the Govt. of Bangladesh should be produced in support of the above.
- If any of the above payments are not covered by the original service contract, a certified copy of the resolution of the Board of Directors of the employer company allowing the payment (duly approved by the Govt. Department, which originally approved the employment of the foreign national) should be submitted.
- Bank’s encashment certificate in support of receipt of funds, if any, from abroad.
- AD’s certificate in regard to the applicant’s investment in Govt. securities made for availing of the income tax relief showing also the amount realized from the sale proceeds and income accrued on the investments.
- Bank certificate showing
- Total amount of remittances made on account of family maintenance, and
- Total amount of remittances made on account of leave salary. In case the applicant’s period of stay exceeds 10 years, the bank’s certificate should cover the period of the last 10 years.
- Statement of transactions in bank account for the last one year prior to the date of the application with explanation of sources of credit entries of Tk. 500 or more other than those relating to receipt of salary and allowances.
- Application for transfer of actuarial reserve and relative insurance record in respect of insurance policy, if any, should be submitted through the insurance company concerned.
The statement/certificates mentioned above are to be prepared by the branch on the basis of their own records.
- Clearance certificate in respect of income tax and other taxes payable.
- For remittance of pension/Provident fund/gratuity on account of an employee retiring from a foreign-owned or foreign controlled organization, a certificate signed jointly by the employer organization and its nominated AD should be submitted. It should state that the relevant pension fund/retirement fund out of which the retirement benefits are payable are maintained in Bangladesh and that no remittance towards contribution to any retirement fund maintained abroad had been made in respect of the applicant.
Examination and Processing of Applications
Before remittance of funds representing savings, pension, and other benefits entitled the branch shall carefully examine the applications and supporting documents to ensure that the amount applied for remittance is the genuine
If, in course of the examination, there emerges sufficient grounds to believe that the amount applied for remittance is in excess of the applicant’s possible genuine entitlement, the branch shall affect remittance only to the extent of its own estimate of the applicant’s genuine claims. Thereafter, the branch should refer the case to Foreign Exchange Policy Department, Bangladesh Bank for further consideration regarding the excess amount, with such additional explanation/representation as the applicant may wish to furnish.
Remittance of Foreign Exchange for Education Abroad:
Foreign exchange may be released for studies abroad by Bangladesh nationals in all regular courses (subject to being consistent with the Education Policy of the Bangladesh Govt.) in recognized institutions. The branch may allow exchange facilities for this purpose according to the following drill:
Application and required papers:
- Application (Appendix 5/57 of BB Guidelines for Foreign Exchange Transactions, 1996) duly filled in;
- Original and photocopy of admission letter issued by the educational institution in favor of the student (such as 1-20 in the case of US institutions);
- Original and photocopy of estimate relating to annual tuition fee, board and lodging, incidental expenses etc. issued by the concerned educational institution (1-20 in case of US institutions);
- Attested copies of educational certificates of the applicant; and
- Valid Passport.
Examination and processing by AD
After scrutiny the application and the supporting documents the branch may sell foreign exchange as per estimate furnished by the educational institution subject to adjustment with the normal travel quota. On application from the student, expenses in transit not exceeding US$ 200 or its equivalent in other freely convertible currency may be allowed out of normal travel quota.
In each case of sale of foreign exchange, the front page of the original letter of estimate/acceptance letter issued by the concerned educational institute should bear clearly the round stamp of the foreign exchange issuing branch and also the signature of the officer of the said branch.
None other than the student (such as the spouse of the student of attendant) will be eligible for exchange facility other than the normal travel quota.
After verifying the original copies of papers the foreign exchange issuing branch shall retain photocopies authenticated by an official of the branch and return the original to the applicant.
Foreign exchange payable to the educational institution should be issued in favor of the institution concerned in the form of TT/MT/Draft. If payment on account of board and lodging and incidental expenses etc. is not compulsorily required to be in favor of the educational institution, foreign exchange on these counts may be issued in favor of the student in the form of TC/Draft etc.
Education institutions sometimes require applicants to send advance amounts for processing of applications, retention of seats etc. If the papers of the foreign educational institution clearly state that advance payment is required for processing of admission application or for retention of seat, the remittance may be made provided the papers from the educational institution also state clearly the advance will be refunded (possibly with small deduction as handling costs etc) in case the applicant is not admitted or cannot join the course.
Foreign exchange will not be admissible to pursue more than one course at a time. Change of course is also not permissible, if a student changes his/her course, foreign exchange facility would be discontinued. However, if credits earned in the earlier course count as credits in the new course by the educational institution concerned, the remittance facilities may be continued.
The facility of purchase of foreign exchange/remittance will not be admissible for more than one academic year at a time.
For each release of foreign exchange subsequent to the first release, the current progress report and current estimate of the educational institution should be taken into consideration. The branch shall maintain separate file for each student with all relevant papers in readiness for perusal by inspecting officials of Bangladesh Bank. All purchases of foreign exchange throughout the entire duration of a course of study pursued abroad should be from the same branch of the bank. For any intended change in this respect, the relevant file shall be transferred direct to the concerned new AD branch on written request from the applicant. This should not be handed ever to him or her.
Remittance of Consular Fees
Consular fees collected by foreign embassies in Bangladesh and deposited in an account maintained with an AD solely for depositing the consular fee collections may be remitted abroad with prior Bangladesh Bank approval. The branch shall report such remittance, if any, in the usual monthly returns along with the relevant TM Form to the concerned area office of Bangladesh Bank.
Foreign immigration authorities may demand evaluation fee from persons desiring immigration for getting educational certificates evaluated by a specific foreign institution. The branch, on application from the applicant, may remit the evaluation fees in such cases as per demand notes of the foreign immigration authorities. The remittances shall also be reported to the area office of Bangladesh Bank in the usual monthly returns along with relevant TM Forms.
Family Maintenance Abroad by Resident Bangladesh Nationals
Applications for remittance of moderate amounts of foreign exchange for maintenance of family members (dependent parents, spouses and children) living abroad may be forwarded by the branch to the Bangladesh Bank for prior approval. The application should be supported by a certificate issued by the relevant Bangladesh Embassy or High Commission regarding residency of the beneficiaries, extent of income abroad along with the mission’s recommendation as to the moderate requirement for family maintenance purpose. The certificate should also indicate the purpose for which the family member(s) went abroad, reasons for continued residence and the probable period of stay abroad.
Other Private Remittances
Applications for remittances by private individuals for purposes other than those mentioned above should be made on Form TM in which full details of the purpose of the remittance should be stated and full documentary evidence in support of the application be attached. The branch must satisfy itself regarding the bonafide of each case on the basis of their personal knowledge of the applicant, if any, or evidence which the applicant may be able to produce. After thus satisfying itself, the branch should certify the application and forward it to the Bangladesh Bank for consideration.
Findings and Analysis
SJIBL Market Share
The SJIBL holds the highest market share of deposits and investments among Private Commercial Banks (PCBs). The banking industry of Bangladesh had a deposit of Tk. 1440.16 billion and loans & advances of Tk. 1319.60 billion as on 31st December 2007, shared among 49 banks consisted of 04 Nationalized Commercial Banks (NCBs), 05 specialized banks, 10 foreign banks, 24 conventional PCBs, and 06 Islamic banks. The SJIBL’s customer deposits stood at Tk. 107.76 billion and Tk. 87.82 billion in YE 2005 and YE 2006 respectively. The investments (loans & advances) of IBBL stood at Tk. 93.64 billion and Tk. 75.86 billion respectively during the same period. The SJIBL held 7.48% of total market deposits and 7.10% of total market investment (loans & advances) as on 31st December 2007. However, the growth rate of SJIBL is higher than the overall market growth. The SJIBL’s customer deposits were increased by 22.70% compared to the industry growth of 16.56% and PCBs growth of 20.00% in YE 2007. During the same year, the investments (loans & advances) of SJIBL were increased by 23.44% compared to the industry and PCBS growth of 19.08% and 30.00% respectively. Being a first generation bank in the private sector, SJIBL has been maintaining commendable growth of deposits and investments, which is better than the growth trends in the industry mainly due to the huge customer participation.
SJIBL’s Private Sector Focus
The focus of Bangladesh industrial policy is to consider the private sector as the engine of growth. The SJIBL has been financing and promoting private sector very extensively. The SJIBL shariah based products such as Bai-Murabaha, Bai-Muajjal, Hire Purchase under Shirkatul Melk, all are basically meant for private sector business financing. Therefore, SJIBL as the leader of private sector financing has been contributing substantially in the private sector development. The SJIBL by this time has developed a base of loyal customers who are paying regularly and enjoying the services of the bank. A Bank of SJIBL stature needs this customer base to maintain its growth.
Foreign Exchange Market
The world foreign exchange market is very big and getting bigger every day in tandem with the growth of cross border trade and investment. Within a space of only 50 years world exports have recorded a phenomenal growth from $57.2 billion in 1950 to nearly $ 6,000 billion at the turn of the century. Simultaneously, turnover in the world foreign exchange market has reached a staggering number of nearly $ 1500 billion per day.
On the global scale, Bangladesh’s performance in the field of foreign trade and foreign exchange is very small. The picture is none-the-less getting better. The country’s exports are growing at an encouraging pace. Bangladesh workers abroad send around $2 billion each year. The growth in foreign trade and remittances has had its impacts on the foreign exchange market. Buoyed by liberalization of exchange control by Bangladesh Bank the newly emerging foreign exchange market grew at a rapid pace– from $1 billion in 1994 to nearly $30 billion in 2000. The growing market reflects diversification of foreign exchange transactions and the depth. Shahjalal Islami Bank should work towards carving a niche for itself in this market through a sustained programmed of training, motivation and operational flexibility.
Operation in the Foreign Exchange Market
Compared to the quietness that featured foreign exchange market in the early nineties, banks are now increasingly taking recourse to the inter-bank foreign exchange market to meet their needs: buying, selling and switching of currencies and covering the risks. Bangladesh Bank now deals only in US dollar within a fixed band around its buying and selling rates. Banks in the market naturally operate at finer than Bangladesh Bank’s rates. Unless the weight of market demand or supply on a particular date pushes the rates to a level that coincide with that of the central bank, Shahjalal Islami Bank should operate in the inter-bank market to cushion the shortfall or unload the excess foreign currencies.
Operation in the market is overseen by an inter bank committee known as Bangladesh Foreign Exchange Dealers Association (BAFEDA). The Association has prepared a code of conduct setting out elaborate rules and procedures governing quotations, delivery, value dates, confirmations etc. Officials responsible for operation in the inter-bank market should carefully follow the codes and other practices to avoid possible complications or disputes.
Based on my three months observation in the bank, I achieved so many practical knowledge. At the time of my internship period I felt some problems and based on that I state the following recommendations to the bank:
- Bank should make their advertisement through newspaper and TV
- They should update their banking software and systems that ultimately result in fully automated banking activities to attain customer satisfaction.
- It should also introduce new innovative services and increase its area of coverage.
- Shahjalal Islami Bank should train its new employees in professional institutions like Bangladesh Institution of Bank Management (BIBM).
- Number of branches should be increased.
- They should increase number of ATM booth.
- The employee of the different branch should be trained continuously.
- Bank should provide their annual reports, Brochure, bulletin etc in order to give necessary information to customer.
- Bank should introduce consumer credit scheme.