General Banking, Investment and Foreign
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Cyberstudentsbd.wordpress.com Internship Report On General Banking, Investment and Foreign Exchange Operation of IBBL Submitted To Syed Monirul Hossain Assistant Professor Department of Business Administration Stamford University Bangladesh Submitted By S.A.M Sharif Sheikh ID : BBA03912607 Batch: 39th Major: Accounting Department of Business Administration Stamford University Bangladesh Date of Submission: 23rd February 2013 Stamford University Bangladesh Cyberstudentsbd.wordpress.com Letter of Transmittal Date: 23rd February 2013 To Mr. Syed Monirul Hossain Assistant Professor Department of Business Administration Stamford University Bangladesh Subject: Submission of Internship Report on “General Banking, Investment and Foreign Exchange Operation of IBBL” Dear Sir, This is my internship report on, “General Banking, Investment and Foreign Exchange Operation of IBBL” I have got the opportunity to work at Islami Bank Bangladesh Limited for my internship program which is an integral part of my academic program. It is great achievement to work under your active supervision. The whole report based on my practical experience in Islami Bank Bangladesh Limited. I have furnished all the things that I have learnt during the internship program in Islami Bank Bangladesh Limited, at Mouchak Branch. I shall be highly obliged if you are kind, enough to receive this report and provide your valuable judgment. Sincerely Yours ------------------------------S A M SHARIF SHEIKH ID: B.B.A. 03912607 Batch: 39th Major: Accounting Program: BBA Department of Business Administration Stamford University Bangladesh ii Cyberstudentsbd.wordpress.com Declaration I do hereby solemnly declare that the work presented in this report “General Banking, Investment and Foreign Exchange Operations, A Study of IBBL” has been carried out by me and has not been previously submitted to any other university. The work does not breach any existing copyright and no part of this report copied from any work done earlier for a degree of others. ------------------------------S A M SHARIF SHEIKH ID: BBA 03912607 Batch: 39th Major: Accounting Program: BBA Department of Business Administration Stamford University Bangladesh iii Cyberstudentsbd.wordpress.com Stamford University Bangladesh Certificate of Supervisor To Whom It May Concern This is certify that the Internship report on “ General Banking, Investment and Foreign Exchange Operations, A Study of IBBL ” for the degree Bachelor of Business Administration (BBA), Major in Accounting from Stamford University Bangladesh carried out by S.A.M. Sharif Sheikh,Batch 39th , Bearing ID No BBA 03912607, under my supervision . This report is free from plagiarism. No part of the report has submitted for any degree diploma, title, or recognition before. I wish him every success in his life ------------------------------------------Syed Monirul Hossain Assistant Professor Department Of Business Administration Stamford University Bangladesh iv Cyberstudentsbd.wordpress.com Acknowledgement It is a great privilege to express gratitude to our creator Allah (SWT) for such great opportunity to be in touch with Islami Bank Bangladesh Limited (IBBL) for the following days. Also have to put my heartened feelings and gratitude for the kindness and assistance that was provided to me to complete assigned report as on the topic General Banking, Investment and foreign Exchange operations, and a study of IBBL Mouchak Branch”. In preparing the proposed report, I have taken great assistance support and guidance from the persons of Islami Bank Training & Research Academy (IBTRA) and from the branch as well. I would like to thanks to my internship supervisor Syed Monirul Hossain, Assistant Professor (Accounting) Department of Business administration, Stamford University Bangladesh for supervising and guiding me to prepare the report. I express my heartfelt thanks to all the faculty members of IBTRA especially to Abu Taher Mohammad Saleh, D.G, (Training), Md. Hedayet Ullah Deputy Director (Traning) & FM (Course Co-coordinator). Also to Md. Dr. Mahmood Ahmed EVP & Director (Training), And all other faculty members as well as all the employees from top to bottom of IBTRA, Who gave us necessary information and excellence guidance to prepare this internship report. I am very much grateful to Mr.Sale Iqbal (SVP) Manager Mouchak Branch ,Mr. Khalifa Al-Masud(AVP),Mr.Shahadat Hossain AVP And Investment in charge of Mouchak Branch, for his heartily co-operation to learn about “General Banking, Investment and Foreign Exchange Operations, A Study of IBBL Mouchak branch” as well. I would like to thanks to GB in charge Kamruzzaman SPO, investment PO Jb. Md. Mahe Alam and Foreign Exchange in Charge Jb. Md. Dider hossain (SPO) Mouchak Branch. Special thanks to Mr. Al Amin sir (Senior Officer) & Mr. Shohid, Mr. Sharif, Mr. Jahirul Islam sir who personally help me in Mouchak Branch. I am very much grateful to my elder brother A.N.M. Mohib Ullah for his guidance and supervision to complete the report. At last, I would like to thanks my group members (different University), my friends and fellows and family members. v Cyberstudentsbd.wordpress.com Executive Summary Islami Bank Bangladesh limited is the number one Bank in Bangladesh. Since its inception in the year 1983, it has earned tremendous popularity and credibility among people for its better services. It is only one Bank of Bangladesh, which is staying in toplisted one thousand Bank of the World. This Bank provides various types of Islami Shariah based services for clients that is totally welfare oriented for the humanity. In this report, it focuses two month working experience about General Banking, Investment and foreign Exchange operations, a study of IBBL Mouchak Branch. At first, discussed about Introduction, Background of the study, Origin and scope of the Report Objectives and significance of the study Sources of Information and Limitations of the study. Which will give a primary idea about this report. Second, discussed about the Conceptual framework; Definition, Functional and Ownership basis classification of Bank. Different role, regulation and organizational structure of Bank. In addition, we have discussed here concept of Islami Bank its Definition, Difference between Islamic and Traditional Bank. In third, describes about the primary phenomena of the Islami Bank Bangladesh Ltd. Its aims, Objectives, Mission Vision, Special features, Organizational functions, Products and services, Membership of different organizations, Branches of the Bank, Corporate information and Achievements. In Fourth, tried to discussed about experience during the internship period. IBBL Mouchak branch has 4650 Million deposits, Investment 9500 Million out of deposit it has borrowed from other branches for investment. In General Banking activities mainly learned; Accounts opening, Providing different information about Mudaraba Deposit , Checking of balance statement, KYC form fill up, Handling transfer transaction, Debit and Credit voucher fill up, Issue cost memo of Telegraph Transfer. In Invest activities observed; Clients application, Quotation, Request Letter of investment, Request for increasing limit, Authorization Letter, Demand promissory note, Delivery Letter, Agreement form, Cash memo. vi Cyberstudentsbd.wordpress.com In Foreign Exchange, activities have learned about Import, Export Foreign Remittance and Trading Currency. Foreign Remittance has two parts, spot cash and web based cash, and there are some procedures for collecting web-based cash. Import Export has some related terms; L/C, Back to Back L/C, L/CAF, MPI, IRC, SWIFT, AD, H S code, BMRE, IBP, UCPDC, ICC. Then evaluate the IBBL by SWOT analysis. The strengths, weakness, opportunity and threat describe in this part. In last discussed about Conclusion and Recommendations. After this overall observation it seems to us, the role of IBBL is very much important for Banking sector and whole economy. vii Cyberstudentsbd.wordpress.com List of abbreviation ACRONYMS ELABORATIONS BB IBBL BANGLADESH BANK ISLAMI BANK BANGLADESH IBTRA. ISLAMI BANK TRAINING AND RESEARCH ACADEMY GB GENERAL BANKING OIC AAOIFI ORGANIZATION OF ISLAMIC CONFERENCE ACCOUNTING AND AUDITING ORGANIZATIONS FOR ISLAMIC FINANCIAL INSTITUTIONS BAB BANGLADESH ASSOCIATION OF BANKS IBB THE INSTITUTION OF BANKERS BANGLADESH BIBM) BANGLADESH INSTITUTION OF BANK MANAGEMENT BAFEDA BANGLADESH FOREIGN EXCHANGE DEALERS ASSOCIATION SWIFT SOCIETY FOR WORLDWIDE INTER-BANK FINANCIAL TELECOMMUNICATION AD AUTHORISED DEALER T.T TELEGRAPH TRANSFER MSA MUDARABAH SAVINGS ACCOUNT. AWCA AL-WADIHA CURRENT ACCOUNT MSSA MUDARABAH SPECIAL SAVINGS (PENSION) ACCOUNT MTDRA MUDARABAH TERM DEPOSIT ACCOUNT: MWCDA MUDARABAH WAQF CASH DEPOSIT ACCOUNTS A/C ACCOUNT KYC KNOW YOUR CUSTOMER TIN TAX IDENTIFICATION NUMBER OBC OUTWARD BILLS FOR COLLECTION IBC INWARD BILLS FOR COLLECTION P.O PAYMENT ORDER viii Cyberstudentsbd.wordpress.com DD DEMAND DRAFT (DD) IBDA INTER BRANCH DEBIT ADVICE IBCA Inter Branch Credit Advice. eIBS electronic integrated banking system HPSM Hire Purchase under Shirkatul Melk SMEs Small and Medium Enterprise MPI Murabaha Post Import IRC Import Registration Certificate TR Trust Receipt IBW International Banking Wing ix Cyberstudentsbd.wordpress.com Serial Topic name No. Letter Of Transmittal Declaration of the Student’s Certificate Page No. I II III Acknowledgement Executive Summary IV V-VI List of Abbreviation Table of Content VII VIII IX-XI 1-6 2 2 Chapter- 1: Introduction 1.1 1.2 Introduction Background of the Study 1.3 1.4 Origin of the report Scope of the report 3 3 1.5 Objectives of the Study 4 1.6 Significance of the Study 4 1.7 1.8 1.9 Methodology Sources of Information Limitations of the study 2.1 2.2 2.3 Definition and Concept of Bank Classification of Bank based on function Classification of Bank based Ownership 5 5 5-6 7-11 8 8 9 2.4 2.5 2.6 The many different roles Bank ply in the economy Banking Regulation Organizational Structure of Baking 9 9-10 10 2.7 2.8 Foreign exchange and foreign trade Importance of foreign exchange business 10-11 11 Chapter-2: Conceptual Framework 3.1 3.2 Definition and concept of Islami Bank Why Islami Bank 12-20 13 13 3.3 3.4 Aims & Objectives of Islami Banking Mission of IBBL 14 14 3.5 Vision of IBBL 15 3.6 Special Features 15-16 Chapter-3: An Overview of Islami Bank Bangladesh x Cyberstudentsbd.wordpress.com 3.7 Organizational Structural of IBBL 16 3.8 Function of IBBL 17 3.9 Distinguish between Islamic and Conventional Banking 17 3.10 The bank at a glance 18 3.11 IBBL Production & Services 18 3.12 Membership of different organization 3.13 Branches of IBBL 19 3.14 Corporate Information 19 3.15 Achievements 20 CHAPTER 4 : Internship Position and Duties 4.1 4.2 4.3 4.4 4.5 4.6 Internship Duties Specific Responsibilities of the job General Banking Activities Foreign exchange activities Investment activities Learning points from internship work at different departments CHAPTER 5: general Banking activities of IBBL 5.1 5.1.1 5.1.2 5.1.2(A) 5.1.2(B) 5.2 5.3 5.4 5.5 5.6 5.7 5.8 5.9 5.10 5.11 5.12 General Banking of IBBL Reception and customer care section Account opening section Al-Wadeeah (AWCA) Al- Mudaraba (MSA) Cash section Bills & Clearing Section Remittance section Dispatch section Accounts section Reconciliation section ATM, iBanking, sms banking, iTransfer, iRecharde Custody and Maintenance Vault and locker service Sundry deposit account Growth of Deposit CHAPTER 6: Investment Procedure Of IBBL 18-19 21-25 22 22-23 23 23-24 24-25 25 26-39 27 27 28 28 28-33 34 35-36 36-37 37 37 37 37-38 38 38 38 39 40-54 6.1 Introduction 41 6.2 Objectives and Principles of Investment 41 xi Cyberstudentsbd.wordpress.com 6.3 Operational Procedure of Investment mechanism of IBBL 6.4 6.5 Importance of Assessing of Investment Needs Investment Mechanism of IBBL 6.6 Role of IBBL in Development of SMEs 49 6.7 Special Schemes under Investment Modes 50 6.8 Islami Bank Foundation 50 6.9 Special Projects 51 6.10 Sector wise investment 51-52 6.11 Mode wise investments 52-54 CHAPTER 7: An Overview of Foreign Exchange 42 43 44-49 55-72 Operation Of IBBL 7.1 Foreign Exchange & Foreign Trade 56 7.2 Importance of Foreign Exchange Business 56 7.3 Regulations for Foreign Exchange Transaction 57 7.4 International Business under Islamic perspective 58 7.5 Foreign Exchange business of IBBL at a glance 59 7.6 Foreign Exchange Activities 59 7.6.1 Import 60-67 7.6.2 Export 67-70 7.6.3 Foreign Remittance 71-72 7.6.4 Trading Currency Chapter 8: SWOT Analysis Of IBBL 72 73-75 8.1 Strengths 74 8.2 Weaknesses 75 8.3 Opportunities 75 8.4 Threats 75 Chapter- 9: Overall Findings, Prospects, Recommendation & Conclusion 76-81 9.1 Findings 77-78 9.2 9.3 9.4 Prospects Recommendation Conclusion 78 79-80 81 Bibliography Appendix 82 83-91 xii Page | 1 1.1 Introduction Because of globalisation, today’s world enhances the opportunities of business and investment, for economic empowerment modern world put a great effort favoring from all aspect. As a result, in the modern society commercial banks occupy a position of economic importance. They play a significant role to meet up the needs of the society, such as large-scale production, capital formation, industrialisation, growth of trade and commerce. Islami bank Bangladesh Limited is an unconditional and specialised financial institution, which is first of its kind in South East Asia, performs most of the standard banking service and investment activities based on profit-loss sharing system conforming to the principles of Islamic Shariah. Islami Bank does not pay interest to the depositor. Instead of interest, depositors participate in the profitability of the bank. The Bank participates in financing long-term projects based on profit-loss sharing instead of granting credit facilities with interest. IBBL also performs various social welfare activities through its subsidiary organ named Islami Bank Foundation (IBF). In this report, I undertake microscopic analysis mainly on General Banking, Investment and Foreign Exchange Operation of IBBL and sketch picture of the same. 1.2 Background of the study Islami Bank Bangladesh Limited (IBBL) is the first of this kind in the South East Asia established in 1983 with a view to provide banking services based on Islamic principles. The bank, which started its operation with only three branches in the first year of its inception, it has now 274 branches in 29 years of operation. As a bank, Islami Bank Bangladesh Limited receives deposits from its customers from all over the country as well as from abroad on profit and loss sharing basis and deploys that fund to different clients as an investment to gain profit. The bank distributes an agreed portion of the profit earned to the customers and the shareholders. Islami Bank Bangladesh Limited also performs foreign exchange business. In this process, the bank endeavors to contribute to the betterment of the society. In the context of open market economy, the foreign exchange business is growing rapidly and playing a vital role in the economic growth of a country. About 40 % of total business of our country is rolling through foreign exchange transaction. Islami Bank Bangladesh Limited has significantly contributed in flow of international transactions. Among the private commercial bank of our country IBBL is being kept the first position in export, import, Page | 2 remittance flow and as well as earnings the operating profit. Why I have chosen this topic, because to focus on foreign exchange, general banking and investment performance of IBBL & its activities as based on Islamic Shariah. This study conducted to evaluate the overall activities of IBBL. Findings of the study may benefit the organisation itself to take strategic decision on its plan to enhance the volume of foreign exchange transaction. It may also benefit the readers as well as researchers who have particular interests in international trade finance. 1.3 Origin of the report This report is based on an internship program. IBTRA (Islamic Bank Training and Research Academy) arranges this internship program to gather practical knowledge about banking activities. This followed by practical experiences in the branches of IBBL. Each intern must carry out a specific project, which assigned by the IBTRA. Consequently a report based on the projects is to be submitted to both the authority of IBTRA and the University. Our topic for this internship report is “General Banking, Investment and Foreign Exchange Operations” of IBBL hence I were placed in Mouchak Branch. 1.4 Scope of the Report The scope of this paper is limited to the organisational structure, background, and objectives, functions, and investment performance of IBBL as a whole. The scope is also limited to different investment schemes, modes, mechanism, investment proposal appraisal procedures, monitoring and documentation of IBBL, general banking aspects and foreign exchange operations. 1.5 Objectives of the Study Page | 3 The first objective of writing the report is fulfilling the partial requirements of the BBA program. The main purpose of this study is to have a better orientation on General banking, Investment and Foreign Exchange business performances of the bank. In this report, I have attempted to give an overview of on General banking, Investment and Foreign Exchange operation of Islami Bank Bangladesh Limited. Following are the main objectives: To familiar the operations of Islami Banking in Bangladesh. To show the investment mechanism and product offerings in different modes of IBBL. To show overall investment proposal, appraisal procedures, documentation system of IBBL and Conventional Banks. To show an overview of Foreign Exchange Operation of IBBL. To recommend actions that may be necessary to redesign the GB,Invst,Forex of IBBL 1.6 Significance of the Study Bank is the symbol of financial stability of a country. It is an institute, which is responsible for safeguarding the financial stability of any country. In modern age, the role of banks is very wide as well as comprehensive. Any kinds of business small or large, inside or outside the country directly or indirectly involved with the bank. Especially in foreign trade and foreign exchange operations are quite impossible to imagine without the help of bank. Bank is main media of foreign business. Now a day IBBL is one of the leading private commercial bank of Bangladesh and it plays comprehensive role to develop business activities as well as the economic development of the country. 1.7 Methodology Page | 4 The study performed based on the information extracted from different sources collected by using a specific methodology. The methods of completing the report have included some steps, which followed by one by one. First selected the topic of the report then collected information relating to the topic by primary and secondary sources and through personal interview. As an Internee of IBBL, it was easy for me to collect data. After gathering, the information determined the procedure of research and sampling plans. After gathering all the information required, come up with an expected result of the report. 1.8 Sources of Information We have collected data from the two unique sources; one is primary sources and another is secondary sources. Primary Sources: Practical experience of banking. Training, workshop & seminar. Discussing with our supervisor and manager. Secondary Sources: Research papers, training materials, magazines. Annual report, Audit reports of IBBL Banking related text books, relevant books, research papers, newspapers, journals and Manuals. Class notes of IBTRA, Website of IBBL. In-depth study of selected cases. Related files, books study provided by the concerned officers. 1.9 Limitations of the Study The major limitation faced in preparing this report was the sensitivity of the data. As it is a highly competitive market, if the margin information released to other competitors, it may have a negative impact on their business. Resultantly, in some cases management were reluctant to give some specific data. Page | 5 Confidentiality of data was another important barrier that confronted during the conduct of this study. Every organization has their own secrecy that not revealed to others. While collecting data on IBBL, personnel did not disclose enough information for the sake of confidentiality of the organization Rush hours and business was another reason that acts as an obstacle while gathering data Time limitation is also a big factor, which hinders the data collection process. Due to time limitation many aspect could not by discussed in the present study. The depth of the analysis has been limited to the extent of information collected from different sources. In many case, up to date information not published. Page | 6 Chapter-02 Conceptual Framework 2.1 Definition and Concept of Bank Bank is a financial intermediary accepting deposit and granting, loans offers the widest menu of services to any financial institutions. Page | 7 Both the old French word banque and the Italian word banca used centuries ago to mean a ‘bench” or money changer table. Banks are among the most important financial institution in the economy. They are the principal sources of credit for millions of individuals and families and for many units of government (school, districts countries, etc). Moreover, for small local business ranging from grocery stores to automobile dealers, banks are often the major source of credit. “The institution which accepts the cheques of the persons from whom it collected money in current accounts is called Bank” - H. L. Hert. ‘Banking is the business of a banker, the keeping or management of a Bank” -The Oxford English Dictionary 2.2 Classification of Bank based on function 1. Central Bank 2. Commercial bank 3. Agriculture bank 4. Industrial bank 5. Co-operative bank 6. Exchange bank 7. Investment bank 8. Savings bank 9. Mortgage bank 10. Transport bank 11. Small and cottage industry bank 12. EXIM bank 2.3 Classification of Bank based on Ownership - Govt. Bank - Private Bank - Joint venture Bank - Autonomous Bank Page | 8 - Foreign Bank 2.4 The many different roles Bank play in the economy The intermediation role The payment role The guarantor role The risk management role The savings/investment advisor role The safekeeping/certification of value role The agency role The policy role 2.5 Banking Regulation As bankers work within the financial system to supply loans, accept deposits, and provide other services to their customers, they must do so within a climate of extensive regulation, designed primarily to protect the public interest. The principal reasons banks are subject to government regulation To protect the safety of the public savings To control the supply of money and credit in order to achieve a nations board economic goals To ensure equal opportunity and fairness in the public access to credit and other vital financial services To promote public confidence in the financial system, so that savings flow smoothly into productive Investment, and payments for goods and services are made speedily and efficiently To avoid concentration of financial power in the hands of a few individuals and institutions To provide the government with credit, tax revenue and other services To help sectors of the economy that have special credit needs 2.6 Organizational Structure of Banking Page | 9 Whatever financial services a banking organisation offers to the public, it must make them available through one or more service facilities, physical locations or electronic network through which bank personnel and equipment sell and deliver services to the public. These banking facilities may be placed either under the control of a single banking corporation or under multiple corporations linked to each other through a common group of stockholders. Unit bank When banks sell their services through one full-service office that is unit bank. Branch bank Banks sells their services through multiple offices that called branch bank. When regulations permit, a bank may decide to establish a branch banking organization, particularly if it serves a rapidly growing region and finds itself under pressure either to follow its business and household customers as they move into new areas or lose them to more conveniently located competitors. 2.7 Foreign Exchange and Foreign Trade According to the theory of comparative advantages, some countries have some advantages where others have another. For example, we have cheap labor; readymade garments on the other hand, U.S. have strong currency. We need foreign currency & they need cheap labor & readymade garments. Therefore, international transaction, Foreign exchange businesses are started. No country is sufficient in every aspect. In general, one country depends on other for goods & services. Foreign exchange & foreign trade has greatly contributed to smooth exchange of goods & services among the countries all over the world. As per Foreign Exchange Regulation Act, 1947 (Article 2nd) Foreign Exchange means Foreign Currency i.e. Currencies other than Local Currency. It includes any instrument drawn, accepted, made or issued under clause (13) of article 16 of the Bangladesh bank order, 1972, all deposits, credits and balances payable in any foreign currency and any draft, travelers cheque, letter of credit and bill of exchange expressed or drawn in the Bangladesh currency but payable in any foreign currency. Cross border transactions or exchange of goods & services between two parties of separate territory (country) called foreign trade. It is part of foreign exchange. Page | 10 Foreign trade includes: Import & Export. 2.8 Importance of Foreign Exchange Business Today’s world called global village. To survive in this competitive global market, the importance of foreign exchange business badly needed. The necessity of foreign trade is a border area. To maintain proper trade balance To enhance sufficient foreign reserve To attract potential investors Chapter-03 An Overview of Islami Bank Bangladesh LTD. Page | 11 3.1 Definition and Concept of Islami Bank Islamic Bank developed under Islamic frame work, performs most standard banking service and investment activities on the basis of profit and loss sharing system conforming the principles of Islamic Shariah. It operates with the objectives to implement and materialise the economic and financial principles of Islam in the banking arena. Page | 12 According to the Organisation of the Islamic Conference (OIC), “Islamic bank is a financial institution whose statutes, rules and procedures expressly state its commitment to the principles of Islamic Shariah and to the banning of the receipt and payment of interest on any of its operations.” According to Dr. Ziauddin Ahmed “Islamic Bank is essentially a normative concept and could be defined as conduct of banking in consonance with the ethos of the value system of Islam.” Although Islamic Bank is a financial institution, its operations and activities shows that Islamic Bank as a business firm with Halal transaction within the boundary of Islami Shariah. The main objective is not only to earn profit but also to make welfare orient interest free and exploitation free economy of a country. 3.2 Why Islami Bank? The objective of Islami banking is not only to earn profit, but to do good and welfare to the people. Islam upholds the concept that money, income and property belong to Allah and this wealth used for the good of the society in general and human being in particular. Islami bank operates on Islamic principles including profit and loss sharing, strictly avoiding interest, which is the root of all exploitation and is responsible for large-scale inflation and unemployment. Islami bank is committed to try its best to do away with disparity and establish justice in the economy, trade, commerce and industry, build socio-economic infrastructure and employment opportunities. 3.3 Aims & Objectives of Islami Banking To conduct interest –free banking To establish participatory banking instead of banking on debtor – creditor relationship. To invest on profit and risk sharing basis. To accept deposits on Mudaraba & Al-Wadeah basis. To establish a welfare-oriented banking system. To extend co-operation to the poor, to up-lift the helpless and the low-income group for their economic success. Page | 13 To play a vital role in human development and employment generation. To contribute towards balanced growth and development of the country through investment operations particularly in the less developed areas. To contribute in achieving the ultimate goal of Islamic economic system. Ensuring justice to both suppliers of fund (depositor) and user of fund ( investment taker) Encouraging and patronizing entrepreneurship. Bridging up the gap between the surplus and deficit of fund. Development of a healthy capital and money market. Providing various services and utilities to the public. Development of standard of living Switching over to mass banking from class banking. Alleviating poverty through Zakat and profit sharing micro-finance. 3.4 Mission of IBBL To establish Islamic banking through the introduction of a welfare oriented banking system and also ensure equity and justice in the field of all economic activities, achieve balance growth and equitable development through diversified investment operations particularly in the priority sectors and less developed areas of the country. To encourage socio-economic uplift and financial services to the low-income community particularly in the rural areas. (Reference : ibbl website) 3.5 Vision of IBBL The vision of IBBL is to always strive superior financial performance, be considered a leading Islamic Bank by reputation & performance. To establish & maintain modern banking techniques. To ensure soundness & development of financial system based on Islamic Principles. To build–up a strong & efficient organization with highly motivated professionals. Page | 14 To work for the benefit of people& encourage savings in the form of direct investment To ensuring stability in financial system with accountability, transparency & integrity. (Reference : ibbl website) 3.6 Special Features All activities are conducting on interest-free according to Islamic Shariah principle. Investment made through different modes as per Islamic Shariah. Investment–income of the Bank is shared with the Mudaraba depositor according to an agreed upon ratio ensuring a reasonably fair rate of return on their deposits. Aims to introduce welfare – oriented banking system, also to establish equity and justice in the field of all economic operations. Extends socio-economic and financial services to individuals of all economic backgrounds with strong commitment in rural. Plays a vital role in human resources development and employment generation particularly among the unemployed youths. Portfolio of investment & investment policy have been specially tailored to achieve balanced growth and equitable development through diversified investment operations particularly in the priority sectors and in the less developed areas of the national economy. Ensures Shariah compliance through regular and effective guidance of powerful and highly esteemed Shariah council consisting of 13 members representing Shariah scholars. 3.7 Organizational Structure of IBBL Executive President (EP) Deputy Executive President (DEP) Executive Vice President ( EVP) Page | 15 Senior Vice President (SVP) Vice President (VP) 3.8 Function of IBBL To maintain all types of deposit accounts. To make investment. To conduct Foreign Exchange Business. To extend other banking service. To conduct social welfare activities through Islamic Banking Foundation. 3.9 Distinguish between Islamic and Conventional Banking Conventional Banks 1. The functions and operating modes of Islamic Banks 1. The functions and operating modes of Islamic Page | 16 conventional banks based on manmade principles. 2. The investor assured of a predetermined rate of interest. 3. It aims at maximizing profit without any restriction. 4. It does not deal with Zakat. 5. Leading money and getting it back with interest is the fundamental function of the conventional banks. 6. It can charge additional money (compound rate of interest) in case of defaulters. 7. In it very often, bank’s own interest becomes prominent. It makes no effort to ensure growth with equity. 8. For interest-based commercial banks, borrowing from the money market is relatively easier. 9. The Client’s status is creditor and debtors. banks based on the principles of Islamic Shariah. 2. In contrast, it promotes risk sharing between provider of capital (investor) and the user of funds (entrepreneur). 3. It also aims at maximizing profit but subject to Shariah restrictions. 4. In the modern Islamic banking system, it has become one of the service-oriented functions of the Islamic banks to collect and distribute Zakat. 5. Participation in partnership business is the fundamental function of the Islamic banks. 6. The Islamic banks have no provision to charge any extra money from the defaulters. 7. It gives due importance to the public interest. Its ultimate aim is to ensure growth with equity. 8. For the Islamic banks, it is comparatively difficult to borrow money from the money market. 9. The status of clients is investors and trader. 3.10 The Bank At A Glance Pioneer in Islamic Banking running its entire operation based on Islamic Shariah. This Council comprising of leading Ulama, renowned economists, lawyers and bankers of the country for constant supervision and guidance of the banking operation. Never participate in the interest based money market operations. Never borrowed from any source either inside or outside the country. A transparent and corruption free operation for the last 23 years in a row. Regular and timely holding of AGM declaring good dividend since 1989 without break till 2002, except in the year 1992. Largest contributor of tax to the Government exchequer from the private sector banks receiving CIP status from the Government almost every year. Received the best bank award in Bangladesh from Global Finance, the UK in 1999, 2000 & 2004. It is Page | 17 connected to 830 offices of 230 foreign banks in 74 countries. IBBL received A+ rating in CRISL ( Credit Rating Information & Services). 3.11 IBBL Products & Services IBBL has the scope to explore the market niche through various types of IBBL instruments. IBBL offers wide range of IBBL products and services. It provides Mudaraba Savings Deposit, Mudaraba Term Deposit, Mudaraba Special Savings (pension), Al –Waadeeah current account, Mudaraba Savings Bond, Mudarba Monthly Profit Deposits, Mudaraba Special Deposits, Mudaraba Hajj Savings, Mudaraba Muhor Savings, Mudaraba Foreign Currency Deposits, and Mudarba waqf cash Deposits. 3.12 Membership of different organisation Local: Bangladesh Institution of Bank Management (BIBM) The Institution of Bankers Bangladesh (IBB) Bangladesh Association of Banks (BAB) Bangladesh Foreign Exchange Dealers' Association (BAFEDA) Central Shariah Board for Islamic Banks of Bangladesh International Chamber of Commerce- Bangladesh Foreign: International Association of Islamic Banks (IAIB), Jeddah, K.S.A. Accounting and Auditing Organizations for Islamic Financial Institutions (AAOIFI), Manama, Bahrain. General Council of Islamic Banks & Financial Institutions (GCIBFI), Manama, Bahrain (IBBL is a member of its Executive Council) Society for Worldwide Inter-bank Financial Telecommunication (SWIFT). 3.13 Branches of IBBL The Bank has 274 branches of the seven divisions in the county. Islami Bank Bangladesh Limited (IBBL) to contribute in our economic development and they properly serve the people of the country. All the branches are equipped with computers in addition to modern facilities, logistics and Page | 18 professionally competent work force. The division number of branches & location map of Islami Bank Bangladesh Limited (IBBL) such as: 3.14 Corporate Information Financial Information: Authorized Capital Tk. 20,000.00 Million ($244.87 Million) paid-up Capital Tk. 10,007.71 Million ($122.53 Million) Deposits Tk. 341,853.67 Million ($4,176.44 Million) Investment (including Investment in Shares) Tk. 322,772.83 Million ($3,943.33 Million) Foreign Exchange Business: Import Tk. 301,207.00 Million ($3,687.87 Million) Export Tk. 178,244.00 Million ($2,182.36 Million) Remittance Tk. 236,607.00 Million ($2,896.93Million) Branches: Total number of Branches 246 Total number of SME Krishi Branches 30 Total Branches 276 Number of AD Branches 43 Number of ATM Booth 200 Number of Shareholders 60,550 Manpower 11,465 3.15 Achievements IBBL's World rating As per Bankers' Almanac (January 2001 edition) published by the Reed Business Information, Windsor Court, England, IBBL's world Rank is 1771 among 3000 banks selected by them. This position was 1902 among 4500 selected banks as on January 1999 edition. IBBL's country Rank is 5 among 39 banks as per ratings made by the above Almanac on the basis of IBBL's Financial Statements of the year 2001. And in 2012 IBBL take place in 1000 number bank among the world. Award and Prizes: International & National Perspective Page | 19 IBBL awarded for several times by international & national organisations. The Global Finance, a reputed London based quarterly magazine, awarded IBBL as the best bank of the country for the year 1999, 2000 & 2005. IBBL has got the 2nd prise of National Export Fare for its pavilion of Service Organisation in 1985. Chapter-04 Internship Position and Duties Page | 20 4.1 Internship Duties We had started our internship program in IBBL on 31st October 2012. There were two types of training method. First step was theoretical training at Islami Bank Training and Research Academy Page | 21 (IBTRA) and second steps was practical session at Islamic Bank Bangladesh Limited (IBBL), Mouchak branch from 11th November 2012 to 27th December 2012. We got chance two months for gathering practical knowledge from this branch. Our office hour was from 10am to 6 pm, when we entered into the office at first we signed in the register book. Our practical working area and responsibilities schedule given by the bank manager, which summarized as follows: Job Rotation Training Investment General Banking Foreign Exchange 10 8 14 8 Figure 1: Working Schedule 4.2 Specific Responsibilities of the job Provide detailed information to the clients about different deposit schemes. Provide clear concept to the clients regarding the difference between profit and interest. Cross Checking the Y-table of Telegraph Transfer(T.T) Issue cost memo of T.T In the Investment section we had to deal with the necessary papers and documents as required. Fill up the necessary documents to apply and sanction of an investment procedure of different companies. Mainly we had to deal with the web based cash collection in the foreign exchange section. 4.3 General Banking Activities Page | 22 Account opening. Had to provide different information about MSA , AWCA , MSSA , MSND,MTDRA and so on Clients account balance and statement checking. KYC from fill up. Handling transfer transaction. Debit and credit voucher fill up. Issue cost memo of Telegraphic Transfer (T.T). Issue cheque book. Transfer local remittance Provide information to the customer Changing customer address, phone number, photo, signature and close existing account, transfer account as per customer requirement. Providing accounts statement Provide online, SMS banking to the customer Collection of all cheque from other bank and within the bank. Provide account balance to the customer 4.4 Foreign Exchange Activities There is a section called foreign remittance section where customers collect foreign remittance. We had to deal with two types of remittance: Spot cash and web based cash. Web Based Cash: Mainly we had to deal with the Web Based Cash collection. The activities we had to do are as follows: When customer comes to collect a Web Based Money, at that time we had to collect a PIN number and his/her name to download the money from internet. It is compulsory to bring national ID card or passport main copy and photocopy to collect the money and the beneficiary has to come by him/herself, otherwise we were not bound to pay the money. Then we had to provide an application form to the customer to write the remitter’s name, the country name, PIN number, his/her name, address, cell phone number, and signature. After that, our onsite senior officer downloads the money information from website and printout three copies of that to maintain other formalities. Page | 23 Then he gives those three copies to me to make credit voucher where we had to write the beneficiary’s name, T. T No, date, amount of the money very carefully and we had to take signature of the beneficiary beside of the credit voucher. After that, we had to input all the information of the beneficiary in the Web Based Remittance register, 1st had to credit the amount in the beneficiary’s account then again had to debit the money in the same account as the beneficiary is taking the cash instantly. The client had to give a signature in his/her account column. Finally, we had to check the application form, which filled up by the beneficiary and staple that with a copy of the web money and his/her photocopy of national ID card or passport. The credit voucher also had to staple with a copy of the web money. 4.5 Investment Activities In this section, we had to mainly deal with the papers and documents needed to fill up to apply and sanction of an investment procedure of different companies. The Bank should have these documents against each investment of any company for future dealings. The papers and documents, which we had to fill up for each company, are as follows: Clients application. Quotation. Request letter for an investment. Authorisation letter. Demand promissory note. Demand promissory note delivery letter. Agreement form. Cash memo. 4. 6 learning points from internship work at different departments Page | 24 In our 45 days of internship period, we have learnt so many things about the banking activities, profession & other particular works regarding the banking services. First 15 days in IBTRA training session, we gathered a lot of theoretical knowledge about Islamic Banking and the next 40 working days, we have learned some practical thing of Islami Banking. Details of the learning area are as follows: We have learned about the Islamic Bank. Islami Bank does not provide any loan rather they provide investment on sharing profit & loss mode. Difference between Interest and profit? Haw to handle a customer enquiry. How to make group work? An executive level of manner. The product and services offered by the IBBL. Account opening system. What are the required documents for making an investment? The difference between Conventional banking & Islamic banking How IBBL collect their deposit. How to issue cheque Chapter-05 GENERAL BANKING Page | 25 ACTIVITIES OF IBBL 5.1 General Banking of Islami Bank Bangladesh Ltd. General Banking is the heart of banking. Here money collection procedure occurs. Other services, like chequ e encas hment , accou nt transf er; account closing, bills and remittance related works are conducted here. So, general banking is the most important area in banking service. Following activities are conducted under this section: Reception and customer care section Page | 26 Account opening section. Cash section Clearing and bills section Remittance section Dispatch section Accounts section Reconciliation section ATM, iBanking , SMS Banking, iTransfer , i Recharge , Mobile banking etc 5.1.1 Reception and customer care section: Young, energetic, diligent and cooperative officials are receiving the customer cordially and lead them to right place / official for their purpose serve. 5.1.2 Account Opening Section: Accounts are opened under the following two modes: A. Al-Wadeeah ( Current Account) B. Al-Mudaraba (Deposit Account) 5.1.2(A). Al-Wadeeah (AWCA) Page | 27 The word ‘Al-Wadeeah’ has derived from the Arabic word ‘Wadayun’, which means to keep / to deposit / to give up / Amanat. As per Shariah, “Amanat means to keep something (goods/money/others) to any reliable person / institution for safe and secured preservation of the same keeping its ownership unchanged and which will be returned to the owner of the fund on demand as it is / in original shape”. In case of Amanat Bank / any other institution cannot use, invest and amalgamate the funds without the prior permission of the owner of the Amanat. Bank receives money from the depositors with the condition to return the money on demand. The account fully governed by “Al-Wadeeah” principle under Islamic shariah. It makes customer risk free from the risk of handling cash themselves. No profit allowed in this account. Required an initial deposit TK. 1000/- & maintenance of minimum balance. Cheques, bills etc collected in this account against commission. Govt. excise and incidental charge realise from this account as per rule. 5.1.2(B). Al- Mudaraba (MSA) The mudarabah account of Islami Banks is different from the account of an interest-based bank. Mudarabah is a form of business contract where one party supplies money and the other manages the business by investing labor and time as per agreement. Under this arrangement, profit distribution under agreed ratio and loss (if any) will be borne by “Saheb al mal” (Islami bank term). The Bank distributes minimum 65% of its investment-income, earned through deployment of Mudaraba deposits, among the Mudaraba depositors. There are two parties: (1).One is Saheb Al Mall (Client). (2.) Another is Mudarib (Bank). Under Mudaraba Mode: Islami Bank Bangladesh Limited care special importance on savings. The objectives and principles of the saving policy of the bank are as follows: To encourage people to save for self and for the country as a whole To develop a sustained saving habit among the people. To mobilise deposits through the operation of following accounts: Page | 28 1. Mudarabah Savings Account. 2. Mudarabah Term Deposit Account: 3 months / 6 months / 12 months / 24 months / 36month term. 3. Mudarabah Special notice account. 4. Mudarabah Hajj Savings Account (a special account to facilitate performance of Hajj by fixed income group: 1year to 25 years term. 5. Mudarabah Special Savings (Pension) account 5 years & 10 years term. 6. Mudarabah Saving Bond Scheme: 5 years & 8 years term. 7. Mudarabah foreign Currency Deposit (Savings) Account. 8. Mudarabah Monthly Profit Deposit Account. 9. Mudarabah Muhor saving Account. 10. Mudarabah Waqf cash Deposit Accounts (MWCDA). Who can open bank accounts? Student under 18 years ( A/C operated by his/her guardian till 18years ) Persons over 18 years (except some restricted person) A/c opened by minors Joint (two or more persons) Firms Co-operative societies Government Public bodies Agents Executors Administrators Trustees Liquidators Receivers Non-Resident Account of club Organisation Illiterate person Page | 29 Procedure of Account Opening Collect an Account opening form from the Bank Fill all the requirements of the form. Nominee is must be specified. Photograph is most important for any account. The account holder sign of his/ her own self in front or the specific bank principle officer in the account opening form. Required documents for Account opening For Mudaraba Savings A/C (MSA A/C): Collect an account opening form from the Bank. Fill all the requirements of the form (Must be introduced by introducer) Nominee is must be specified. Photograph is most important for any account. The account holder sign of his/her own self in front or the specific bank principle officer in the account opening form. To open this account the most important things is that Passport Photocopy or the National ID Card photocopy must have to add with the account opening form. For Mudaraba Special Savings (pension) (MSS) A/C. Collect an Account opening form from the Bank. Fill all the requirements of the form (Must be introduced by introducer) Nominee is must be specified. Photograph is most important for any account. To open this account the most important things is that Passport Photocopy or the National ID Card Photocopy must have to add with the account opening form. For Sole Proprietorship Firm: Page | 30 Trade license up to date. KYC form for Firm. Introduction of any current account holder. Two copies attested Photocopies of proprietor (A/C operator) Tax Identification Number (TIN) VAT certificate. Nationality Certificate from word commissioner/ Up Chairman or Passport Photocopy. All documents must submit by attested the photocopies of the original documents. For Partnership Firm: Partnership Deed. Trade License Up to date. KYC form for Firm. Introduction of any Current Account holder. Two copies attested photographs of A/C holders. TIN Certificate. VAT Certificate (if necessary). Nationality Certificate from Word Commissioner/ UP Chairman or Passport photocopy of every signatories of the Account. All documents must submit by attested the photocopies of the original documents. For Public/Private limited company: Resolution of the companies. Memorandum and Articles of Association (Rubber Stamp seal should be put up in all pages of the Memorandum) Certificate of Incorporation. Certificate of Commencement of Business. Trade license up to date. TIN Certificate. VAT Certificate KYC Form for Firm. Page | 31 Introduction to any current account holder. Two copies attested photographs of A/C operators. Nationality Certificate from Word Commissioner/ UP Chairman or Passport Photocopy of every signatories of the A/C. For Association/Trust/Society Request letter. Photograph of signatories attested by introducer. Copy of Resolution of governing body to open the account and authorization for operation. Copy of consolation / bylaws/ rules. Certificate of registration. List of authorized signatories and members of the governing bodies along with address. Trust Deed (for Trust account only). Cheque Book Issues Types of Cheque Book’s: ▫ Savings Account – 20 page ▫ Current Deposit Account – 20 Leaves or more ▫ Current Deposit Account – 25 Leaves (CDTF) Cheque Issuing is Two Types: Cheque Issuing Direct Cheque Book’s Relation Requisitio Page | 32 Account Transfer Customer has to submit an application mentioning that he/she wants to transfer his/her A/C to his desired branch and the officer will verify the signature, Customer has to be certified by different department of Bank that he/she has no liabilities to the bank. Then total particulars of A/C holder will prepare and sent to the customer's desired branch. Liability of recogniser is secondary and account holder is primary. Account Closing First, a customer has to submit an application with his/her signature mentioning that he/she wants to close the A/C. Then the officer will verify the signature. Customer has to certify by different department (Advance, Foreign Exchange department) of Bank that he/she has no liabilities to the Bank. After that, the customer's A/C debited and then Bank issues a Pay Order in the name of A/C holder or pay as per their instruction. 5.2 Cash Section: The cash section of any bank plays very significant role in general banking department because, it deals with most liquid assets. Basically cash department is the most vital and sensitive department of the branch which deals with all kinds of transaction in cash. department. The All cash IBBL receipts is and equipped payments with are electronic made through this machinery with fully computerised system which delivers quick service to its valued customers. This section receives cash from depositors and pay cash against cheques, draft, pay order (PO), etc over the counter. This section accepts cheques from the depositors for payment in cash. The drawer who wants to receive money against cheque comes to the payment counter and presents the cheque to the officer. He verifies the following information: Page | 33 I. Date of the cheque II. Signature of the account holder III. Material alteration IV. Whether the cheque is crossed or not V. Whether the cheque is endorsed or not VI. Whether the amount in figure and in word corresponds with each one Then the officer checks the cheque from the computer for further verification. Here is the following information that is checked. I. Whether there is sufficient balance or not II. Whether there is stop payment instruction or not III. Whether there is any legal obstruction or not The cash section deals with all type of negotiable instruments. It also includes the vault which is used as the store of the cash instruments. Any client who wants to deposit money will fill up the deposit slip and give the form along with the money to the cash officer over the counter. The cash officer counts the cash and compares with the figure written in the deposit slip. Then he puts his signature on the slip along with the ‘cash received’ seal and records in the cash receive register and also in the computer against the account holder. 5.3 Bills & Clearing Section: A cheque is a bill of exchange drawn on a specified banker and not expressed to be payable otherwise than on demand. [Section 6, Negotiable Instrument Act, 1881] A cheque may be an open cheque (which can be presented for payment by the holder) or a crossed cheque (which can be paid only through a collecting banker.) Cheques of its customers are received for collection from other banks. In case of receiving cheques, following points should be checked very carefully: The cheques should more than 6 months. not carry a date older than the receiving date for In that case it will be a stale cheque and it will not be allowed for collection. Page | 34 The amount in figure and words in both sides of the pay-in-slip should be same. The name mentioned in the cheque should be same in both side of the pay-in-slip and it should be the same with the name mentioned in the cheque. The cheque must be crossed. The place where banks meet and settle their dues is the clearing house. Types of cheque Inward clearing cheques: Inward cheques are those ones drawn on the respective branch which have been presented on other banks and will be cleared/honored through the clearing house. For example, the cheque drawn on IBBL, Head Office. Outward Cheques: These cheques are received on the counter from other banks. There are 3 types: 1. Drawn on another branch of IBBL. These are called Outward Bills for Collection (OBC). 2. Drawn on another bank, which is situated in the clearing house area. This cheques are called clearing cheque. 3. Drawn on another bank, which is situated outside the clearing area. This cheques are also called as OBC. Outward Bills for Collection (OBC) OBC are those cheques drawn on other banks which are not within the same clearing house. An officer gives OBC seal on this type of cheques and later sends a letter to the manager of the branch of the same bank located in the branch on which cheque has been drawn. After collection of that bill, branch advice the concerned branch in which cheque has been presented to credit the customer account through IBCA. In absence of the branch, officer sends a letter to the manager of the bank on which the cheque is drawn. That bank will send pay order in the name of the branch. This is the procedure of OBC mechanism. Inward Bills for Collection (IBC) Page | 35 All clearing cheques not received on the counter. Some cheques are received from other source for collection. These cheques are received from other branch of IBBL. These cheques are settled by sending IBCA. 5.4 Remittance section: Issuance, Payment and Cancellation of D.D, T.T & P.O. *Demand Draft: (DD) According to section 85 (A) of the Negotiable Instruments Act, a demand draft is “An order to pay money drawn by one office of the bank upon other office of the same bank for a sum of money payable to order on demand.” *Telegraphic Transfer: (T.T.) Telegraphic transfer is so far the quickest method of transferring funds from one place to another. Sometimes, the remitter of the funds requires the money to be available to the payee immediately. In that case, bankers requested by the remitter to remit the fund telegraphically. *Payment Order: (P.O.) Pay Order mean for making payment of the banker’s own or of the customer’s dues locally and not for affecting any remittance to an out station. In a sense, the payment order used for making a remittance to the local creditors for which application to be made through F -19 and amount may be deposited through cheque / cash. 5.5 Dispatch section: Inward: Incoming letters receiving, acknowledging, opening, giving of entry, marking, handing over to the respective officials etc. Outward: Giving of entry, posting / courier, collecting, acknowledgement etc. Cash receiving from suspense a/c and maintenance. 5.6 Accounts Section: Book keeping, maintenance of vouchers preparation of general ledger and clean cashbook, maintenance of sundry, suspense etc. Page | 36 Reconciliation of IBG A/C’s IBDA Inter Branch Debit Advice. IBCA Inter Branch Credit Advice. Income-expenditure register maintaining 5.7 Reconciliation section: IBG advice (IBCA-IBDA) writing and signing. IBG statement preparing and sending Complying letters from reconciliation department etc. 5.8 ATM, iBanking , SMS Banking, iTransfer , i Recharge: Islami Bank Bangladesh Limited now has its own ATM network with 48 booths. IBBL also has 85-shared ATM booths with ETN covering major cities and districts of the country. IBBL is on its way to expand their ATM network countrywide. IBBL cardholder can withdraw cash; pay BTTB, Grameen Phone, City Cell and Aktel bill and monthly installments of MSS, Hajj, Muhor and HDS schemes through ATM. IBBL has developed its own integrated banking system namely as eIBS (electronic Integrated Banking System) with the following objectives: To support True Islamic Banking System. To develop in-house software which encourage local talents to design & develop, maintain and enhance the banking system. To give an opportunity to the young, energetic fresh graduates to design, develop and maintain a complete banking solution of International Standard. 5.9 Custody and Maintenance Custody and maintenance of AOF SS Cards, Cheque Books, Ledgers, Statement of A/Cs voucher and secrecy of Accounts. 5.10 Vault & Locker Service Page | 37 Strong vault rooms & locker services maintained for safeguard of valuable things & papers. 5.11 Sundry Deposit Account When amounts received by the bank cannot credit to the relative head of accounts reasons, then bank is required to keep such type of amounts in sundry deposits account pending disbursement of the same to the proper heads of accounts. The following are the sub-heads of sundry deposit accounts: Sundry Creditors Security Money Payable Locker Key Security Deposit Staff Security Deposit Outstanding Expenses Marginal Deposit Bank Guarantee (BG) 5.12 Growth of Deposit Total deposit of the Bank now stands at Taka 341,853.67 million on 31.12.2012 as against registering a growth rate of 20.45% against the same period of the previous year. The Bank has a sound deposit-base as it mainly comprises of small and medium size deposits. 400000 350000 341,853 335578 300000 291935 250000 202115 200000 211292 166325 150000 132419 100000 69655 50000 0 z 2005 2006 2007 2008 2009 2010 2011 2012 Page | 38 Chapter-06 INVESTMENT PROCEDURE OF IBBL Page | 39 6.1 Introduction Investment is the action of deploying funds with the intention and expectation that they will earn a positive return for the owner. Funds may invest in either real assets or financial assets. When resources used for, purchasing and assets fixed current in a production process or for a trading purpose, that 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) Page | 40 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. 6.2 Objectives and Principles of Investment The objective and principle of investment operations of the Bank are: To invest fund strictly in accordance with the principle 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 investment-client by professional appraisal of investment proposal, 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 encourage social enlistment enterprises. To avoid even highly profitable investment in fields forbidden under Islamic Shariah and are harmful for the society. To invest in the form of goods and commodities rather than give out cash money to the investment clients. 6.3 Operational Procedure of Investment mechanism of IBBL Page | 41 6.4 Importance of Assessing of Investment Needs Assessment of Investment needs necessary for the following reasons. To detect actual Investment limit of Bank. To detect actual Investment against obsolete /out dated/non trading items. To assess the quality, quantity, price and marketability of the commodities To ensure proper follow-up supervision and monitoring of the Investment. Page | 42 To ensure capacity of the client in handling Investment activities. to overcome the situation of Division of found by the clients To ensure trading instead of lending of money. To ensure payment against delivery of goods. To ensure actual buying and selling of goods. To select proper & genuine Investment client. To ensure viability/profitability of the project. To ensure compliance of Shariah Principles. To maintain discipline in the Investment port-folio of the Branch. To secure the Investment. To allow Investment for appropriate period. To handle the Investment proposal efficiently. To ensure investment for productive purpose. To identify the tenure of investment to be made i.e. for short term /midterm /long term. To know the objective of Investment. To ensure profitability of all concerned. To ensure welfare of the society. To ensure Business ethics. To minimize the risk of investment. To ensure national interest. To ensure recovery of investment in time. To comply the Bank’s target regarding diversification of Investment. 6.5 Investment Mechanism of IBBL Investment is the action of deploying funds with the intention and expectation that they will earn a return for their owners of a fund can deploy it through real investment or financial investment. When resources spent to purchase fixed and current assets for use in a production process for trading purpose, then it can be termed as real investment. For example, deposit of money with a bank, purchase of Mudarabah Savings Bond or share of a company. Financial investments ultimately takes form of real investment as it is meant for so. Since hoarding is condemned by Page | 43 islam and a 2.5 percent annual tax (Zakat) is imposed on savings, the owner of a fund, if he is unable to make real investment, has no option but to invest his savings as a financial investment. Modes of finance followed by Islami bank exercised under three principles. Investment Mechanism Bai-Mechanisim Bai-MURABAHA Sharing (Profit & Loss) Mechanism Ijara Mechanism MUDARABAH Hire Purchase Bai-MUAJJAL (Deferred sale) Bai-SALAM ISTISNA'A SALE MUSHARAKA (Partnership) Hire purchase Under Shirkatul Melk Bai –Mechanism: Under Bai Mechanism Islami Bank Bangladesh Limited practiced different kinds of investment modes. Those are given below: 1. BAI-MURABAHA Meaning: The terms 'Bai- Murabaha' have derived from Arabic words Bai and Ribhun. The word Bai means Page | 44 purchase & sale and the words Ribhun means an agreed upon profit. Bai-Murabaha means sale on agreed upon profit. Definition: Bai-Murabaha may be defined as a contract between a buyer and a seller under which the seller sells certain specific goods permissible under Islamic Shariah and the law of the land to the buyer at a cost plus agreed profit payable on cash or on any fixed future date in lump- sum or by installments. The profit marked-up may fixed up on lump sum or in percentage of the cost price of the goods. 2. BAI-MUAJJAL (Deferred sale) Meaning: The terms "Bai" and "Muajja" have been derived from Arabic words 'Bai' and 'Ajal'. The word Bai means purchase and sale and the word 'Ajal' means a fixed time or a fixed period. "Bai-Muajjal" means sale for which payment made at a future fixed date or within a fixed period. In short, it is a sale on Credit. Definition: 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 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. 3. BAI- SALAM (Advancement Payment) Meaning: The terms “Bai” and “Salam” have derived from Arabic words. The words “Bai” means “sale and purchase” and the word “Salam” means “Advance”. “Bai-Salam” means advance sale and purchase. Page | 45 Definition: It is a sale, which the buyer makes an advance payment, but the delivery delayed to an agreed date. In the Bai-Salam, a financial transaction happens in advance in cash as a price of commodity whose delivery will be in a future date. It means deferred the commodity sold (debt in kind) and price of the commodity described is to be aid immediately in advance. 4. ISTISNA'A SALE Definition: Instisna'a sale is a contracting which the price is paid in advance at the time of contract and the object of sales manufactured and delivered later a manufacturer, artist or craftsman may take orders, with or without advance payment, to make articles himself or hire labor to do so. The purchasers called Mustasnia contractor and the seller is called "sania" maker manufacturer and the thing is called 'masnooa' manufactured, built, made. Share Mechanism 1. MUDARABA Definition: It refers to a contact between two parties in which one party supplies capital to the other party for the carrying on of some trade on the condition that the resulting profits distributed in a mutually agreed proportion while all loss is borne by the provider of the capital. Mudarabah also known as Qirad and Muqaradah Mudaraba is a contract of those who have capital with those who have expertise where the first party provides capital and the other party provides the expertise with the purpose of earring "halal" (Lawful) profit, which will devised between them in ration agreed. This mode serves the business interest of the capital owner and the mudharib (agent). 2. MUSHARAKA (Partnership) Meaning and definition: Page | 46 The word Musharaka derived from the Arabic word Sharikah meaning partnership. Islamic jurists point out that the legality and permissibility of Musharakah based on the injunctions of the Holy Quran, Sunnah, and Ijma (consensus) of the scholars. It may note that Islamic Banks are inclined to use various forms of Shariakt- al -Inan because of its built on flexibility. At an Islamic bank, a typical Musharakah transaction may conduct on the following manner. One / two or more entrepreneurs approach an Islamic Bank for the finance required for a project. The bank along with other partners provides complete finance. All partners, including the bank have the right to participate in the project. They can also waive this right. Ijara Mechanism Hire purchase Under Shirkatul Melk Meaning and Definition: Hire purchase Under Shirkatul Melk is a special type of contract, which has developed through practice. Actually, it is a synthesis of three contracts: 1. Shirkat 2. Ijarah and 3. Sale There may defined as follows: Shirkatul Melk: Shirkatul means partnership Shirkatul Melk means share in ownership. When two or more persons supply equity, purchase an asset, own the same jointly, and share the benefit as per agreement and bear the loss in proportion to their respective equity, the contract called Shirkatul Melk contract. Ijarah: The term Ijarah has derived from the Arabic words ‘Air’ and ‘Uirat’, which means consideration, return, wages, or rent. This is really the exchange value or consideration, return, wages, rent of Page | 47 service of an asset. Ijarah has 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 assert is hired out by the Hiree to a Hirer against fixed rent or rentals for a specified period. Element of Ijarah: A. According to 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 Hiree, the owner of the property, and a Hirer, the party that benefits from the use of the property. Subject matter of the contract: this includes the rent and the benefit. B. The Hiree: the individual or organization hires/rents out the property of service called the Hiree. C. The Hirer: the individual of organization hires / takes the hire of the property or service against the consideration, rent/ wages/ remuneration called the Hirer. D. The benefit / asset: the benefit, which is hired/, rented out is called the benefit. E. The rent: the consideration either in monetary terms or in kinds fixing quantity of goods/money to paid against the benefit of the asset or service of the asset called the rent. Sale: This is a sale contract between a buyer and a seller under which the ownership of certain goods or asset transferred by seller to the buyer against agreed upon price paid / to pay by the buyer.Thus, in Hire Purchase under Shirkatul Melk made 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 hired out to the client partner for a fixed rent per unit of time for a fixed period. Lastly, the bank sells and transfers the ownership of its share / part / portion to the client against payment of Page | 48 price fixed for that part gradually part either by part or in lump sum within the hire period or after the expiring of the hire agreement. Stages of Hire Purchase under Shirkatul Melk: Thus, Hire Purchase under Shirkatul Melk agreement has three stages: Purchase under joint ownership Hire and Sale and transfer of ownership to the other partner Hirer. 6.6 Role of IBBL in Development of SMEs Small and Medium Enterprise (SMEs) play an important role in the economic and social life and can generate a large number of employments in the traditional and non-traditional sectors. Keeping this in view, IBBL has set up a separate Division name Small Enterprise & Consumer Investment Division (SECID) with effect from January 01, 2008 for Small Enterprises financing in compliance with the Bangladesh Bank guidelines. Moreover, IBBL is financing Medium.Enterprises through two other Divisions name Project Investment Division (PID) and General Investment Division (GID). 6.7 Special Schemes under Investment Modes Household Durable schemes-HDS Investment schemes for Doctors Small Business Investment schemes(SBIS) Agricultural Implements Investment schemes(AIIS) Housing Investment schemes-HIS Real Estate Investment Program-REIP Rural Development schemes-RDS Transport Investment schemes-TIS Car Investment scheme-CIS Page | 49 Mirpur Weavers Investment schemes-MSWIS Micro Industries Investment scheme-MIIS Palli Griha Nirman Beniyog Prakalpa-PGNBP 6.8 Islami Bank Foundation One of the distinguishing features of Islami Bank Bangladesh Limited is that its Overall activities are directed towards the welfare of the society. The welfare activities of Islami Bank Foundation are as under: Income Generating Programs Educational Programs Health and Medicare Programs Humanitarian Help Programs Relief and Rehabilitation Programs Dawah Programs 6.9 Special Projects Islami Bank Hospital Islami Bank Medical Collage, Rajshahi Islami Bank Community Hospital Monoram: Islami Bank Crafts & Fashion Islami Bank Institute of Technology Islami Bank International School and College Bangladesh Cultural Center Distressed Women Rehabilitation center Islami Bank Nursing Training Institute Page | 50 6.10 Sector wise investment To suit the needs of client of different strata in the society islami bank sanction & disburse data in different sector. The mentioning sector of investment of IBBL are: Industry Commerce Real Estate Agriculture Travel SME Particulars Industry Commerce Real Estate Agriculture Travel SME Others 2011 122270 38234 16966 20923 6457 100991 2010 113979 46142 11336 14252 4583 72933 Page | 51 Interpretation From the above graph ,it can be said that IBBL distribute its investment facilities according to different sectors. In 2010 bank invested in industrial sector the most. 6.11 Mode wise investments The bank arrange investments in different modes based on Islamic investments of IBBL are: Particulars shariah. Year wise 2011 2010 Bai Murabaha 177136 146135 Hair Purchase 89070 80093 Bai Muajjal 15912 12393 Bill Purchase &Nego 2744 Quard E Hasana 5614 2095 Bai Salam 3528 3624 Murabaha 2266 1500 Musharaka 9571 12244 0 0 Others 5141 Page | 52 Interpretation From the above graph ,it can be said that IBBL distribute its investment facilities according to differentmodes. In 2011 & 2010 bank invested in murabaha & hair purchase. Mode wise investments in %: Particulars 2011 2010 Bai Murabaha 55.52 54.6 Hair Purchase 30.42 34.42 Bai Muajjal 4.71 3.41 Bill Purchase &Nego 1.95 5.26 Quard E Hasana 0.8 1.32 Bai Salam 1.38 0.97 Page | 53 Mudaraba 0.57 0 Musharaka 4.65 0.02 Total 100 100 Interpretation From the above graph ,it can be said that IBBL distribute its investment facilities according to different modes. In 2011 & 2010 bank invested in murabaha & hair purchase. CHAPTER-07 Page | 54 AN OVERVIEW OF FOREIGN EXCHANGE OPERATION OF IBBL. 7.1 Foreign Exchange Foreign & Trade According to the theory of comparative advantages, some countries have some advantages where others have another. For example, we have cheap labor; readymade garments on the other hand, U.S. have strong currency. We need foreign currency & they need cheap labor & readymade garments. Therefore, international transaction, Foreign exchange businesses are started. Page | 55 No country is fully sufficient in every aspect. In general, one country depends on other for goods & services. Foreign exchange & foreign trade has greatly contributed to smooth exchange of goods & services among the countries all over the world. Foreign Exchange: As per Foreign Exchange Regulation Act, 1947 (Article 2nd) Foreign Exchange means Foreign Currency i.e. Currencies other than Local Currency. It includes any instrument drawn, accepted, made or issued under clause (13) of Article 16 of the Bangladesh Bank Order, 1972, all deposits, credits and balances payable in any foreign currency and any draft, travelers cheque, letter of credit and bill of exchange expressed or drawn in Bangladesh currency but payable in any foreign currency. Foreign Trade Cross border transactions or exchange of goods & services between two parties of separate territory (country) are called foreign trade. It is part of foreign exchange. Foreign trade includes: Import & Export. 7.2 Importance of Foreign Exchange Business Today’s world is called global village. To survive in this competitive global market, the importance of foreign exchange business is badly needed. The necessity of foreign trade is a border area. To maintain proper trade balance To enhance sufficient foreign reserve To attract potential investors To control international flow of funds 7.3 Regulations for Foreign Exchange Transaction Many regulations have been developed to do smooth functioning & controlling the international business. International Chamber of Commerce (ICC) has been playing a vital role for effective & efficient function in international business. In our country, the Central Bank, Bangladesh Bank published two foreign exchange guide lines (Foreign Exchange Guide line Vol-I & Vol -II). Bangladesh Bank & CCI & E controls the Foreign exchange business. The central bank issued Page | 56 many circulars regarding foreign exchange transactions & they are the monitoring authority by issuing up-to-date instruction circulars for smooth functioning. Ministry of commerce issued IMPO (Import Policy Order & Export Policy Order) & EXPO. Foreign Exchange transactions are regulated by the following Act / Guidelines / Circular etc: Foreign Exchange Regulation Act, 1947 Imports & Exports (Control) Act, 1950 Circular issued by the Central Bank (BB) Export –Import Policy Orders –Published by the Ministry of Commerce. Public Notices – issued by Chief Controller of Import & Export (CCI & E) Guidelines / Circulars of the bank Publications of International Chamber of Commerce (ICC) like UCPDC -500, URC, and URR etc. In addition to the above following Acts are also followed – Companied Act, 1994 Bank Company Act,1991 Money Laundering Prevention Act,2002 Negotiable Instruments Act, 1881 Customs Act,1969 Income Tax Ordinance,1984 Contract Act, 1872 and Other related Acts / Ordinances Islami Bank Bangladesh Limited has to perform its all transactions related to import & export by abiding the National and International rules/regulations in addition to its own rules / regulations / guidelines and Islamic Shariah etc. 7.4 International Business under Islamic perspective Essential features of international trade financing by conventional banks are: Page | 57 Legal relation is based on assignment and Mandate Title of goods remains in the name of client Deals with documents rather than goods Does not take risk as rate of return is fixed at the time of negotiation Abstract responsibility in case of fraud or defective goods Charges interest based on the amount disbursed No necessity to comply with Shari’ah Essential features of internal trade financing by IBBL are Legal relation is based on sales contract between parties Title of goods remains in the name of the Bank Deals with goods rather than documents Takes risk as the client may fail to purchase the goods at the predetermined prices Responsibility Subordinate to the contract Earns profit based on the purchase price at the agreed upon rate of profit. Traded goods must comply with Shari’ah IBBL offer different trade products and services complying Shari’ah and law of the land. 7.5 Foreign Exchange business of IBBL at a glance Figure in million tk. SL No Business Achieveme nt in 2010 Target for 2011 Achievem ent Up to September 2011 Achievement (%) of target Growth (%) 1 2 3 4 5 6 7 246,281 305,000 239,170 105% 41% 1 Import Page | 58 2 Export 148,421 193,000 137,644 95% 31% 3 Remitta nce 214,629 275,000 174,703 85% 11% 4 Total 609,331 773,000 551,518 95% 28% 7.6 Foreign Exchange Activities Foreign exchange transactions are includes: Import Export Remittance Trading of currency 7.6.1 IMPORT The general principle in financing import business is elimination and avoiding of interest in all operation. The different modes of IBBL are as under: Mainly three types of import are done purpose wise. Import of trading item for ultimate user or consumer. Import of Raw materials or industrial item for further processing or further production Import of Capital Machinery & Capital Item. Page | 59 In all types of import usually the importer take bank finance. In IBBL, finance can also be made for the first two types under Bai-Murabaha & Bai-Muajjal mode and for the 3rd type under HirePurchase under Shirkatul Melk (HPSM) mode. Import finance can also made under Bai-Salam or Musharaka or Mudaraba modes. Islami Banks have to perform its all transactions related to import & export by abiding the National and International rules/regulations in addition to its own rules/regulations/guidelines and Islamic Shariah. A) Import under Bai-Murabaha Bai-Murabaha is a contract between a Buyer and a Seller under which the seller sells certain specific goods permissible under Islamic Shariah and the Law of the land to the Buyer at a cost plus agreed profit payable in cash or any future date in lump sum or by installment. The profit mark-up may be fixed in lump sum or in percentage of the cost price of the goods. Procedure of Import of goods under Bai-Murabaha Bai-Murabaha means "Sale on agreed upon profit" and in case of import we can do the same practice. As per the procedure Bank purchase goods from foreign supplier and sale to the importer/client. As per international banking practice and as per UCPDC goods consigned to the opening bank i.e. the owner of goods is bank till transfer the ownership by endorsement on the back of Bill of Lading (B/L) or other transport document. Also as per UCPDC payment claim by the supplier of the goods to the L/C opening bank through drawing bill of exchange on Bank. As per Islamic Banking practice import finance under Bai-Murabaha is made under single deal covering the investment at L/C stage, Bills stage, and post import stage as under: i. Murabaha Import L/C ii. Murabaha Import Bills iii. Murabaha post Import Murabaha Post Import (MPI) If the importer/client like to take the financial facility for paying custom duty, VAT and other cost along with import payment bank may provide the facility under Islamic mode under Murabaha mode, which is called single deal Murabaha or MPI. The agreement is made at the time of import Page | 60 and the whole process of (i) Murabaha L/C, (ii) Murabaha Bills and (iii) Murabaha Post Import is covered under one agreement as a single deal. B) Import under Bai-Muajjal It is a Contract between a Buyer and a Seller under which the seller sells certain specific goods (permissible under Shariah and law of the land) to the buyer at an agreed fixed price payable at a certain fixed future date in lump sum or within a fixed period by installment. Important Features of Bai-Muajjal Most of the features of Bai-Murabaha & Bai-Muajjal are same, except It is purely a sale on credit The Seller (Bank) may sell the goods at an agreed price which will include both the cost price and the profit, unlike Bai-Murabaha; the Bank may not disclose the cost price and the profit mark-up separately to the client. Procedure of import under Bai-Murabaha and Bai-Muajjal are almost same. C) Import under Hire Purchase under Shirkatul Melk (HPSM) For import of machinery and other durable and reusable item import is made under HPSM mode. HPSM is a mechanism as combination of three systems namely- Izarah, Shirkat and Bai-(Purchase and Sale) i. Bank and client import the item jointly sharing money as per agreement i.e. Shirkat ii. Bank gives lease of their portion at an agreed rent. iii. Bank Sale their portion of the property gradually by receiving periodical payment from the client. Zone Wise Import Position (In Terms of Contribution): Up to September’11) Zone wise Contribution in import (% ) Rajshahi 4% Comilla 0% Sylhet 0% Barishal 0% Bogra Zone 2% Khulna Zone 6% Dhaka Central 47% Chittagong (South) 21% Dhaka North 6% Chittagong (North) 5% Mymensingh 0% Dhaka South 9% Page | 61 Letter Of Credit (L/C) Letter of Credit (L/C) is a payment guarantee to the seller by the buyer’s bank. It is in fact, a Credit Contract whereby the buyer’s bank is committed (on behalf of the buyer) to place an agreed amount of money at the seller’s disposal under some agreed conditions. Buyers and sellers enter into contracts for buying and selling goods/ services and the buyer instructs his bank to issue L/C in favor of the seller. Here bank assumes fiduciary function between the buyer and seller. Types of L/C Islami Bank Bangladesh Ltd. Deals with two types of L/C. These are 1. Sight L/C 2. Deferred L/C. Parties to letter of credits The following parties are involved to a letter of credit, namely – Obligatory Parties are Importer/ Buyer/ Applicant Opening Bank/ Issuing bank Advising Bank/ Notifying Bank Exporter/ Seller/ Beneficiary Optional Parties (In case of need) are Negotiating Bank Confirming Bank Paying/ Reimbursing bank Applicant The person or body (customer of the bank) who requests the bank (opening bank) to issue letter of credit. Opening Bank / Issuing Bank The bank that opens/issues letter of credit on behalf of the applicant/importer. Advising Bank/ Notifying Bank Page | 62 The bank through which the L/C IS advised to the beneficiary (exporter). Exporter/ Seller/ Beneficiary Beneficiary of the L/C is the party in whose favor the letter of credit is issued. Usually they are the seller or exporter. Confirming Bank The bank, which under instruction in the letter of credit, adds their irrevocable undertaking to that of the issuing bank. It is done at the request of the issuing bank having arrangement with them. The confirmation constitutes a definite undertaking on the part of confirming bank in addition to that of issuing bank. Negotiating Bank The bank that negotiates document and pays the amount to the beneficiary when presented complying credit terms. If the negotiation of the documents is not restricted to a particular bank in the L/C, normally negotiating bank is the banker of the beneficiary. Reimbursing / Paying Bank The bank nominated in the credit by the issuing bank to make payment against stipulated documents, complying with the credit terms. Normally issuing bank maintains account with the reimbursing bank. Import Procedure An importer is required to have the following formalities to import the goods through Islami Bank Bangladesh Ltd. An account with Islami Bank Bangladesh Ltd. Import Registration Certificate (IRC) Tax Paying Identification (TIN) Number Page | 63 Performa Invoice/ Indent Membership Certificate LCA (Letter of Credit Application) form duly attested One set of IMP Form Insurance Cover note with money receipt Others Import Mechanism To import, a person should be competent to be an ‘Importer’. According to Import and Export Control Act, 1950 the Office of Chief Controller of Import and Export provides the registration (IRC) to the importer. After obtaining this, the person has to secure a letter of credit authorization (LCA) from Bangladesh Bank. And then a person becomes a qualified importer. He is the person who requests or instructs the opening bank to open an L/C. He is also called opener or applicant of the credit. Securitization of L/C Application The IBBL Official scrutinizes the application in the following manner The terms and conditions of the L/C must be complied with UCPDC 500 and Exchange Control & Import Trade Regulation; Eligibility of the goods to import; The L/C must not be opened in favor of the importer or his agent; L/C must be signed by the importer agreeing all terms and conditions mentioned in the application; IMP form duly filled in and signed; Validity of IRC; HS code of the goods; Insurance cover note with date of shipment; Radioactivity report in case of food items; Survey reports or certificate in case of old machinery (ies).; Page | 64 Carrying vessel is not from Israel; Certificate declaring that the item is in operation not more than 5 years L/C Advising Mechanism The seller being satisfied with the terms and the conditions of the credit proceeds to dispatch the required goods to the buyer. Then he has to present the documents evidencing dispatching of goods to the negotiating bank on or before the stipulated expiry date of the credit. The usual documents are Invoice Bill of lading Certificate of origin Packing list Shipping advice Non-negotiable copy of bill of lading Bill of exchange Pre-shipment inspection report Shipment certificate. Scrutiny of Documents First of all it must be ensured that full set of documents as mentioned in the L/C has been received. Following documents are included, namely1. Letter of Credit 2. Commercial Invoice 3. Bill of Exchange 4. Bill of lading 5. Insurance cover note 6. Certificate of origin Lodgment of Shipping Documents During scrutiny, if the documents are in order, the branch then lodges the documents in PAD. The following steps are involved in lodgment – First all the particulars of the documents are entered in the PAD (Payment against Document) register and PAD No. Seal Convert the foreign currency into Bangladeshi currency. Reverse the contingent liability and entry made in the liability register. Prepare lodgment voucher Page | 65 Prepare lodgment voucher Liability reversal vouchers Banker’s Liability on L/C Customer’s liability on L/C Send an IBCA to the head office. Dr. Cr. Make intimation to the importer. Payment Procedure of Import Documents This is the most sensitive task of the Import Department. The officials have to be very much careful while making payment. This task constitutes the following- Date of Payment: Usually payment is made within seven days after the documents have been received. If the payment is become deferred, the negotiating bank may claim Profit for making delay. Preparing Sale Memo: A sale memo is made at B.C rate to the customer. As the T.T & O.D rate is paid to the ID, the difference between these two rates is exchange trading. Finally, an Inter Branch Exchange Trading Credit Advice is sent to ID. Requisition for the Foreign Currency For arranging necessary fund for payment, a requisition is sent to the International Department. Transmission of Message: Message is transmitted to the correspondent bank ensuring that payment is being made. Import Trend of IBBL Page | 66 Chart Title 200000 150000 100000 50000 0 1 2 3 4 5 6 7 8 9 10 Series1 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Series2 4% 30% 34% 24% 41% 30% 41% 13% 39% 20% Series3 16673 21738 29151 36169 51133 66690 93920 1E+05 1E+05 2E+05 7.6.2 Export Export means flow of goods and services produced within Bangladesh but purchased by economic agent (individuals, firms & government) of other countries. In other words in case of exports products sold outside the country. So getting payment against such sale usually require different time span depending on the terms of sale contract or relative payment terms of export L/C. In view of above exporter require immediate fund and other financial facilities to execute their export order. It is the bank who extends such facilities as needed by the exporter. In addition, facilitating export by financing exporter at different stages are now important part of bank’s activities. Export section deals with two types of L/C that are as followsExport Section Back-to-Back L/C Export L/C Exporter requires financial assistance at two stages namely Page | 67 Pre-shipment stage & Post–shipment stage So, export finance is classified into two categories A) Pre-Shipment finance B) Post-Shipment finance A) Pre-Shipment Finance under Islamic Modes Pre-shipment finance is given for the following purposes. Finance for local procurement of goods. Procuring and processing of goods Packing & transportation of goods Payment of Insurance premium Payment of utility bill Payment of wages and salary Freight charge Pre-shipment finance can be made under Islamic mode as follows. Back-to-back L/C To purchase/procure goods for export processing bank may provide facility in the way of Back-toBack L/C opened under Bai-Muajjal mode. If the back-to-back L/Cs are opened deferred payment basis no finance by the bank is required except if they fail to make shipment in time. Bai-MurabahaTR For purchase of goods for export shipment bank can finance under Bai-Murabaha TR mode. That means the exportable goods or raw materials are purchased under Bai-Murabaha mode and delivered to the exporter client for export or export processing against Trust Receipt duly signed by the client. The mechanism of Bai-Salam is- goods purchase in advance against payment now but delivery of goods will be made after a specified time. For meeting the expenses other than procurement of goods bank make finance Page | 68 Under Bai-Salam mode to the exporter. Through Bai-Salam bank purchase a portion of exportable goods in advance and make payment. After production exporter makes shipment of the goods, this is already sold to the bank. Musharaka Pre-shipment can be made through Musharaka mode if pre-arrangement is made. B) Post Shipment Finance Post-shipment finance is made by the bank after shipment by negotiated and purchased of shipping documents by the bank. Bank made payment on submission of documents if these are free from any discrepancies and bank found suitable for purchase in all respect. Bank adjust their liability when get foreign payment. Bank earns exchange income from such finance, which is permissible under Islamic Shariah. Stages & Mechanism of Export 1) Exporter will make the goods ready for shipment. 2) Arrangements have to be taken for inspection of the goods by the competent authority as per credit terms. 3) Exporter will declare on EXP form against export L/C/Firm Contract/ Advance payment. 4) Exporter have to arrange approval for export from custom authority on EXP from by submitting Export L/C, Export permission from CCI & E, Quota clearance from EPB, U.D. in case of garments, invoice, packing list along with shipping bill prepared by C&F agent. 5) After completion of custom formalities, shipping company will receive the goods and will issue B.L. 6) Exporter will collect visa/ license and certificate of origin for final documentation. Page | 69 7) Exporter will submit the full set of documents to the negotiating bank for negotiation. 8) Negotiation bank will dispatch the documents to the issuing bank for clearance of the goods from destination against payment as per credit terms. Export Trend of IBBL 7.6.3 Foreign Remittance Foreign remittance means remittance of foreign currencies from one place/person to another place/person. In board sense, foreign remittances include all sale & purchase of foreign currencies on account of Import, Export, Travel & purposes. All foreign remittances are grouped into two board categories & guided by the Foreign Exchange Regulation Act, 1947 and guidelines for foreign exchange transactions of Bangladesh Bank. Foreign Inward Remittance Foreign Outward Remittance Zone wise Remittance Position (in terms of contribution): Up to September’11 Zone wise Contribution in Remittance (%) Barishal, 6.79% Dhaka Central, 6.16% Dhaka North, 7.27% Sylhet, 11.62% Dhaka South, 9.15% Mymensingh, 8.6% Comilla, 28.59% Chittagong (North), 4.15% Chittagong (South), 4.51% Khulna Zone, 5.25% Rajshahi, 4.29% Bogra Zone, 3.60% Page | 70 Foreign Inward Remittance Remittance of foreign currency being received in the country from abroad is called inward foreign remittance. Some special feature of Inward Remittance Any amount can be brought in If remittance is above US $2000/- then the form “C” is to be filled in by the beneficiary maintaining the purpose of remittance. Form FRJ is to be declared to the custom for above US $ 5000/- on arrival by incoming passenger at the entry port. If the remittance is for gift/donation permission is to be obtained from perspective ministry/authority. Foreign Outward Remittance Foreign currency being made out abroad may be termed as foreign outward remittance. Purpose of foreign Outward remittance: Travel/Tour/Visit, Education, Seminar/Workshop, Fees Family maintenance, Salaries & savings by expatriates Remittance by foreign shipping lines/airlines/courier services Dividend/gain of foreign company Hajj Expenses of office opened abroad Remittance of royalty & technical fees Operating expenses of offices of Bangladeshi shipping corporation & Bangladesh Biman Remittance against import claims Subscription to foreign media, Advertisement, Bank charges etc. 7.6.4 Trading Currency Page | 71 Trading of foreign currency means Purchase & sale of different currencies or exchange of one currency into other. It includes mainly dealing room operation (Dealing room: A room where online buying & selling of foreign currency takes places) excluding the money market operation. This is purchase or sale of one currency in term of another, either Local Currency to Foreign Currency, or Foreign Currency to Local Currency, or Foreign Currency to Foreign Currency (Cross Currency). The Dealing Room of IBBL established at IBW (International Banking Wing) in July 2005 and is functioning with two officials who have taken Foreign Exchange Bourse Training in Mumbai under the auspices of Reserve Bank of India. The Dealing Room of IBBL earned BDT 210.00 million from July 2005 to December 2005. From January to August 2006, Dealing Room has earned BDT 255.00 million. Page | 72 CHAPTER-08 SWOT ANALYSIS OF IBBL SWOT Analysis Page | 73 SWOT Analysis is an important tool for evaluating the company’s Strengths, Weaknesses, Opportunities and Threats. It helps the organisation to identify how to evaluate its performance and scan the macro environment, which in turn would help the organisation to navigate in the turbulent ocean of competition. The SOWT analyses of IBBL presented below: 8.1 Strengths: Adequate finance: Islami Bank Bangladesh Ltd. has adequate finance. That’s why they need not to borrow money from Bangladesh Bank or any other financial institution. More funds for investment: For adequate financial ability, they can provide more investment to the clients. Honest and Reliable Employees: All of the employees of Islami Bank are honest and reliable. They are always devoted themselves to the works for better customer service. They have no corruption report. It has vast years of experience since its establishment. IBBL is only the Bank, which is the pioneer of welfare banking system among all other financial and banking organisation. At IBBL, the top management is the driving force and the think tank of the organisation where policies designed and often cascaded down. IBBL provides its customer excellent and consistent quality in every service. IBBL is a financially sound company. IBBL utilizes state-of-the art technology to ensure consistent quality and operation. IBBL provides its works force an excellent place to work. IBBL has already achieved a good will among the clients. IBBL has a research division. 8.2 Weaknesses: Page | 74 IBBL have lacks well-trained human resource in some area. IBBL have lacks aggressive advertising The procedure of credit facility is to long comparing to other banks. Employees are not motivated in some areas. Absence of structured marketing and credit policy Lack of co-ordination with the branches and Head Office. Lack of IT assistance 8.3 Opportunities: Emergence of i banking will open more scope for IBBL. IBBL can introduce more innovative and modern customer service. Many branches can be open in remote location. IBBL can recruit experienced, efficient and knowledgeable work force as it offers good working environment. The successful launching and needs to an Islamic Money Market in the country. 8.4 Threats: The worldwide trend of mergers and acquisition in financial institutions is causing problem. Frequent taka devaluation and foreign exchange rate fluctuation is problem. Many new banks are coming in the scenario with new service. Local competitors can capture huge market share by offering similar products. The rules and regulations of Bangladesh are not favorable for Islami Bank. Therefore, they have to face various problems to operate their activities according to Islami Shariah. Lack of skill personnel, because of poor salary structure rather than other private banks. Unknown attitudes of the people about the Islamic Banking. CHAPTER-09 Page | 75 OVERALL FINDINGS, PROSPECTS, RECOMMENDATION, & CONCLUSION. 9.1 Findings: Bangladesh is not a full Islamised country, all activities are not operating according to the Shariah of Islam. Nevertheless, the IBBL is trying to operate their activities as much as Page | 76 possible. Yet some limitations and problems are arising and that’s why to encapsulate the overall study we need to detect some findings which are present below: Islamic Banking is a new phenomenon in our country during last two decades. Therefore, majority of our people have no proper knowledge about the activities of Islamic Banking as well as its investment mechanism hamper large scope of investment of IBBL. No Islami money market is available. Easily money transaction is not possible for the interest free banking system. Call rate money is not responded according to Islami Shariah Most of the people in our country have a bad impression of IBBL’s operations regarding indirect generation of interest which meaning no difference between investment of IBBL loan / Credit / advance of conventional banks, for this reason, they are not too much interested to make investment with IBBL. Because of improper, insufficient application of Islamic Banking rule in our country. The investment operations of IBBL cannot run smoothly. IBBL, which is committed to avoid interest, cannot invest the permissible part of its statutory liquidity reserve and short Term liquidity surplus in those securities. This bank cannot invest in all economic sectors, which prohibited by the law of Islam. Profitable investment portfolio of IBBL requires clear investment knowledge according to Islamic Shariah. However, sometimes IBBL cannot invest its assets in proper portfolio due to insufficient and unskilled work force in these regards. As a result, there is a large amount of money being idle and thus potential profit is not increasing. This Bank revalues its investment operations within limited number of investment modes and does not initiate investment modes according to changing diverse needs of people Sometimes investment operations of IBBL hampered due to increase, dishonest, indiscreet, hypocritical nature of people. IBBL has no strong promotional activities to increase motivate its present and potential investment client. IBBL does not grant investment portfolio for new entrepreneurs, new businesspersons, and new companies etc., which ultimately create “Class Banking There are limited scopes to deal women entrepreneurs and professionals for making investment by women interpreters. Page | 77 In rural areas for low-income community, this bank grants investment and group not individual. As a result, the mission, using invested money in income generating activities so the poor needy population can become self-reliant failed. Moreover, it enhances group dependence. IBBL has lack of modern technologies and equipment's like online facilities, fax, cash card and credit card system. Numbers of employees are fewer than the volume of works, which creates problem for prompt service. Absence of efficient personnel and infrastructure fit for Islamic trade financing on International Business. IBBL has no special share market. It is another limitation. There is no Shariah Board in Bangladesh for foreign exchange business, which can guide them in their activities. 9.2 Prospects In spite of the present limitations Islamic Banking system has tremendous Potentiality and prospects in Bangladesh. The successfully launching and operation of Islami Banks in Bangladesh has established the fact that banking without interest is feasible. Islami banks have brought together money deposits and entrepreneurs under their fold and coverage. These depositors and entrepreneurs so long avoided interest based banking on grounds of religious injunctions. 9.3 Recommendation To ensure better customer services coping with the growth of overall business of the branch additional space kindly allocated immediately for the branch. Business discretionary power may revise. Expenditure ceiling may revise considering the grade of the branch. Evening banking allowance may be increased. Page | 78 Automation of Foreign Exchange portfolio. Revision of foreign exchange related charges. Arrangement of monthly /quarterly training courses /workshops for the clients selected by the branches in order to promote investment clients of the desired level. Effective human resources should place at every department of IBBL for more speedy and smooth banking operation. Women employee should be increase more in order to deal women entrepreneurs for create demand for investment. To fulfill the vision of "mass banking" this Bank should grants investment portfolio to new entrepreneurs /new businessperson’s new companies etc. The bank should disburse total invested money at once to the clients to achieve full benefits of invested money. The amount of investment of RDS & operating range should increase. So more people will get the facility under the scheme & they will able to increase their standard of livings. To gain success in the programs like "Poverty Alleviation and "Self Reliant" especially in rural areas, this bank should provide investment facilities on the basis of individual. To create syndicate banking system for foreign exchange business Decision making process should be free of ambiguity and be time conscious Ensure reasonable spread and return on assets. Build good value for sponsors and shareholders. Formulation of recruitment / remuneration policy should be outstanding. Enhancement of remuneration package should be competitive and attractive. Eventually, it should mentioned that IBBL is still very successful and competitive in their customer service, banking operation, management process, record keeping and overall activities of banking. The Bank should go aggressive advertising and promotional activities to get a broad geographic coverage. IBBL should utilize "Internship Program" as one kind of promotion policy to encourage its present and potential investment clients. To do so this bank should provide facilities to the internees through proper placement and practical operations as Page | 79 well as job certainty to those who bring introduce themselves the best performers in doing their particulars. IBBL should appoint a sufficient number of women employees to deal women entrepreneurs and professionals, understand their needs, and thus create demand for investment. To fulfill the vision of "mass banking" this bank should grants investment portfolio to new entrepreneurs /new businessmen new companies etc. To remove image problem, IBBL should take various advertisement programs. Literature on Islamic capital market may preserve at IBTRA library. Inclusion of more subjects based on the Quran and Sunnah in the training courses of the Islami Bank Training & Research Academy in order to develop human resources having morally. IBBL should initiates different investment modes according to changing /diverse needs of clients by conducting huge Research and study. 9.4 Conclusion IBBL is trying to develop banking sector through welfare and servicing to the people. Islami economy and banking bound together. IBBL has emerged facing the many obstacles yet. This bank is trying to operate their activities according to Islam. Most of the people in our country have a bad impression about IBBL’s operations regarding indirect generation of interest, which means no difference between investments of IBBL Page | 80 loan/credit/advance of conventional banks for this reason. They are not much interested to investment with IBBL because of majority of our people have no proper knowledge about the activities of Islami banking as well as its investment mechanisms. IBBL through its steady progress and continuous success has, by how, earned the reputation of being one of the leading private sector banks of the country. The bank has shown steady progress in this important sector. IBBL’s capital adequacy, deposits, reserves, earning per share, export, import and remittances are increasing day by day. Therefore, no doubt IBBL is a growing profitable financial institution. Interest free banking system is no more a concept. It is now a reality, a dynamic system, embodying a set of superior banking mechanism. More than 300 Islamic bank and financial institutions are operating in different countries throughout the world with a marked success from this inception in our country in 1983. IBBL has been operating with real and confidence in corporation with other conventional banks. The significant growing of IBBL has encouraged the traditional banks to open Islamic banking window, like –HSBC, Dhaka Bank Ltd., Prime Bank Ltd., The city Bank Ltd. Though IBBL has reached the top position among the PCBs in our country, it has more concentrate its customers’ service to survive in the end by facing the competitors’ strong strategies in banking era. To conclude we must say that, Islami bank Bangladesh Limited (IBBL) has immense potential in Bangladesh. It can play vital role in bringing revolutionary changes in our life with both material and moral world and in individual and collective level. Bibliography Text Book 1. Text Book on Islamic Banking Publishes by Islamic Economics research Bureau. 2. Principle & Practice of Islamic Banking” Written by Abdur Rakib (EVP), IBBL. 3. Islami Banking written by A.A.M. Habibur Rahman. Page | 81 4. Book, Journals related to Islami Banking. 5. An Overview of Investment Portfolio of IBBL. 6. Booklet namely “Introduction of Islami Bank Bangladesh Ltd.” 7. Foreign Exchange operations by Jb. Md. Belayet Hossain. 8. Economic Trends published by Bangladesh Bank. Publication 1. Annual Report of 2010 & 2011 2. Materials Supplied by IBTRA. (sheet) Internet 1. http://www.bangladesh-bank.org 2. http://www.islamibankbd.com 3. http://www.ibtra.bd.com Page | 82 IBBL Milestone Established on : 13th March 1983 Certificate for Commencement of Business : 27th March 1983 Inauguration of 1st Branch : 30th March 1983 Formal Inauguration : 12th August 1983 Page | 83 Shariah Supervisory Committee : 1983 CSR/Foundation activities : 1983 IPO : 1985 Listing in Dhaka Stock Exchange Ltd. : 2nd July1985 Listing in Chittagong Stock Exchange Ltd. : 7th March1996 Accommodation of IBBL Head Office in its own : Tower 10th March 2000 1st Rights Share issue : 1989 2nd Rights Share issue : 1996 3rd Rights Share issue : 2000 4th Rights Share issue : 2003 Opening of 100th Branch : 12th June 1997 Opening of 200th Branch : 21st June 2009 Opening of 250th Branch : 15th December 2010 Joining/Agreement with CDBL : 29th December 2004 In-house Core Banking Software : 2005 Page | 84 IBBL Mudaraba Perpetual Bond (MPB) Issue : 25th November 2007 Inauguration of Broker House : 1st January 2008 A. Islami Bank Securities Limited (IBSL) : 22nd March 2010 B. Islami Bank Capital Management Limited (IBCML) : 1st April 2010 1st Position of IBBL in Inward Remittance : 2007, 2008, 2009 & 2010 100% Branch Online Banking : 7th January 2011 Formation of Subsidiary Companies of IBBL Branches of ibbl Page | 85 Five year performance of IBBL ( Amount In Million Taka ) Page | 86 Part Particulars 2007 2008 2009 2010 2011 Authorized Capital 5,000.00 5,000.00 5,000.00 10,000.00 10,000.00 Paid-up Capital 3,801.60 4,752.00 6,177.60 7,413.12 Reserves Fund 7,418.04 9,308.00 13,927.94 16,081.14 17,792.50 Total Equity 14,957.74 18,572.00 23,619.81 28,400.03 33,716.73 Total Deposits (Including bills 166,812.78 payable) Gross 202,115.00 244,292.14 291,934.60 341,853 Total Investments (Including Inv in 102,145 Share) Gross 123,959.00 174,365.55 198,763.00 255,272.41 Import Business 137,086.00 168,329.00 161,230.00 246,281.00 301,207.00 Export Business 66,690.00 93,962.00 106,424.00 148,421.00 178,244.00 Remittance 84,143.00 140,404.00 194,716.00 214,629.00 236,607.00 Total Foreign 287,919.00 Exchange Business 402,695.00 462,370.00 609,331.00 716,058.00 Total Income 17,699.51 23,454.00 25,403.86 30,128.90 38,401.29 Total Expenditure 13,918.70 15,151.00 18,886.20 21,674.20 25,053.00 Net Profit before 3,780.82 Tax 6.348.00 6,517.66 8,454.71 10,841.45 Payment Government (Income Tax) 2,385.08 3,245.08 3,253.23 4,108.98 5,515.56 25% (Stock) 10% (Stock) 10%(Cash) 20%(Stock) 35% stoc 7%(Cash) 25%(Stock 188,115.27 250,012.79 288,017.19 340,638.49 Dividend to Total Assets 150,959.66 (including Contra) Page | 87 Total Assets 122,880.35 (Excluding Contra) 150,252.82 191,362.35 230,879.14 278,302.84 Fixed Assets 3,724.69 3,987.23 4,407.00 6,512.36 No. of deposit 2,705,180 account holder 3,207,131 3,802,709 4,361,896 42,72,123 No. of investment 297,943 account holder 421,751 508,758 498,362 1,62,736 Cumulative amount disbursement from RDS 6,033.36 9,303.12 13,969.01 18,768 24,239.00 of 1,106.00 2,242.00 2,885.00 3,012 3,752.00 RDS no. of A / C 164,116 holder 295,012 350,278 321,484 492,475.00 RDS no. of village 4,560 8,057 10,023 10,763 10,751.00 Number of 860 Foreign Correspondents 870 884 906 919 Number Shareholders of 17,201 20,960 26,488 33,686 52,164.00 Number Employees of 6,202 7,459 8,426 9,397 9,588 Number Branches of 169 176 186 196 231 Book value per 3,013 Share ( Taka) 3,020 4,147 238 325 Earnings per 487.57 Share (Taka) 368.42 375.46 56.29 55.10 Market Value per Share (Taka) 5,580.00 (Highest) 4,749.00 6,986.00 830 890.00 Outstanding Investment RDS 3,067.99 of Page | 88 Capital Adequacy 9.44% Ratio 9.43% 10.61% 10.72% 11.65% 450000 400000 350000 300000 Deposits 250000 Investment 200000 Remittance 150000 Foreign Exchange 100000 50000 0 2006 2007 2008 2009 2010 Figuer: Performance of IBBL Page | 89 Figure: Deposits Investments Year 2006 2007 2008 2009 2010 Amount 113575 144921 180054 214619 263225 Figure: Investment Page | 90 Remittance Trends (Country vs. IBBL) Period National IBBL Share (%) 1 2 3 4 2005 273,043 36,948 13.53 2006 377,924 53,819 14.24 2007 452,640 84,143 18.59 2008 621,131 140,420 22.60 2009 745,040 194,716 25.59 2010 775,954 214,629 27.66 1 2 3 4 5 6 7 0% 17% 16% 16% 17% 17% 17% Page | 91
