“Banking Operations of Shahjalal Islami Bank Limited”.
1.2 Justification of the Study: Islamic banking refers to a system of banking or banking activity that is consistent with the principles of Islamic law (Shariah) and its practical application through the development of Islamic economics. Shariah prohibits (Haraam, forbidden) the payment or acceptance of interest (Riba, usury) fees for the lending and accepting of money respectively, for specific terms, as well as investing in businesses that provide goods or services considered contrary to its principles. It is motioned in the Holy Qur’an, “But Allah has permitted trade and has forbidden interest.” (Sura Baqara, Chapter 2, Verse 275) The best example of Islamic Banking has been set by the Malaysia government. In Bangladesh, though the Islamic banking is introduced for a long period, but the perfect example of Islamic banking is not yet available. In this context, it is a great chance to observe practically the difference between the Islamic banking and conventional banking. 1.3 Objectives of the Study: The primary objective of this report is to get acquainted with the banking business operation of an Islamic bank. The specific objectives of the report are: a) To submit a report, for fulfillment of my MBA practicum. b) The main objective of this report is to focus on “Overall Bank Activities Of SJIBL” c) To make a study of the facts in order to arrive at certain conclusion about overall banking operation. d) Critically analysis the functions and operations of each level of the organization of SJIBL. e) To acquire an in depth understanding of the functions of each department. 1.4 Scope of the Study: The focus of the report will be on various functional areas of Shahjalal Islami Bank Limited.
a) Account opening department b) Clearing department
c) Cash department d) Investment department e) Foreign Exchange Department. 1.5 Methodology of the Study: To meet the objectives of the study, I realized that a single method would not be effective. Formal & oral discussion, direct observation, questioning clients & printed papers of the Bank were found to be useful. And as I am working there so it was easy for me collect those. To collect the necessary and meaningful information, the following methods were applied: 1.6. Data Collection: The report was fully investigative in nature. Data have been collected from two sources; primary and secondary sources.
• 1.6.1 Secondary Sources: a) Annual Report of Shahjalal Islami Bank Limited. b) Website of Shahjalal Islami Bank Limited. c) Different 'Procedure Manual', published by Shahjalal Islami Bank Limited. 1.7 Limitation of the Study: Any research work needs high degree of involvement regarding collection of information, creation of database, literature review and analysis of data. While doing so, many limitations arise even though we always put our best effort to avoid them. In conducting the present study, the following limitation has been faced.
a) b) c) d)
Due to confidentiality, the data available may not be accurate. Supply of more practical and contemporary data is another shortcoming. The study may not be done very successfully due to inexperience. On our schedule time we could not find some of the respondents, because they were busy with their work on that time.
1.8 Synoptic View of the Study: This report is divided into six chapters to show the different aspects of the study in a systematic way. As this is the first chapter, it includes the introductory part like- background, justification, objective, scope, methodology, limitations. In the second chapter, we have shown the bank’s overall position in present time which includes the company’s brief description, background, vision, mission, strategy, nature and legal aspect, management system, products and services, future outlook etc.
Chapter three deals with the general banking activities of the bank which includes cash section, clearing section, account opening, various deposit schemes, pay order, demand draft, risk management etc. In chapter four, the investment related items are found here. The various Islamic investment models are discussed here briefly and how the investment portion works here, that is discussed also. Chapter five gives the idea regarding the foreign exchange part of the organization where import, export, and remittance deals with the Islamic context. In chapter six, SWOT analysis along with my finding, recommendation, and conclusion are available.
2.1 Introduction: Shahjalal Islami Bank Limited (SJIBL) is a commercial bank. The commercial banks are the heart of our financial structure since they have the ability to co-operate with the Bangladesh Bank to accelerate the money supply of the nation and thus create additional purchasing power. These characteristics set commercial banks apart from other financial institution. By lending and investing money and by transferring funds throughout the nation, even between countries, they make possible a more complete utilization of resources of the nation. Although banks create no new wealth, their lending, investing, and related activities facilitate the economic process of production, distribution and consumption pattern of the economy. 2.2 Overview of Islamic Banking Industry: At birth, Bangladesh inherited an interest based banking system, which was introduced here earlier when the country was a part of British Colony. On the other hand, Islamic banking was successfully tried in Egypt; after the Mit Ghamar Model, Naser Social Bank was in the process of establishment. During the seventies, Islamic Development Bank (IDB) and a number of Islamic banks at national levels were established in the Islamic world. At home, the Islamic groups were vigorously working for adoption of Islam as the complete code of life. They found Islamic banking in ready form of immediate introduction. Two professional bodies Islamic Economics Research Bureau (IERB) and Bangladesh Islamic Bankers Association (BIBA) were taking practical steps for imparting training on Islamic Economics and Banking to a group of bankers and arranging some national and international seminars and workshops to mobilize local and foreign people and attract investors to come forward to establish Islamic banks in Bangladesh. Their professional and right-thought activities were reinforces by a number of Muslim entrepreneurs working under the aegis of Muslim Businessman Society (MBS). The body concentrated mainly in mobilizing equity capital for the emerging Islamic bank. Due to continuous and dedicated work of the above groups and individuals and active support from the Government, Islamic banking could be established in early eighties. Islamic banks have been operating in Bangladesh for about one and half decade alongside with the traditional banks. Like any other traditional commercial banks, they do mobilize deposits and produce loans. But their modes of operation, based on Shariah, are different from the other traditional commercial banks.
2.2.1 Role of Bangladesh Bank in Promoting Islamic Banking in Bangladesh: Though there is no complete Islamic Banking Act for controlling, guiding and supervising the Islamic banks in Bangladesh, some Islamic banking provisions have already been incorporated in the amended Banking Companies Act, 1991 (Act No. 14 of 1991). Bangladesh Bank did not set up any separate Department at its Head Office to control, guide and supervise the operation of the Islamic banks. Inspection and supervision of the Islamic banking operations are conducted by the Bangladesh Bank as per the general guidelines framed for the conventional banks. So, ensuring implementation of Shariah principles in the Islamic banks are being conducted by their own Shariah Councils. The role of Bangladesh Bank in controlling, guiding and supervising the Islamic Banks in Bangladesh in accordance with Islamic Shariah is very minimal. In observing the Shariah implementation status of the Islamic banks, Bangladesh Bank examines only the report of the respective banks’ Shariah Councils. However, the inspectors and supervisors of Bangladesh Bank are not equally familiar with the technicalities of the different operational methodologies of the Islamic banking. This is because of the fact that there is no separate Department to look into this important matter. According to International Journal of Islamic Financial Services Vol. 2 No.1, a committee of experts set up by the Governors of Central Banks and Monetary Authorities of the OIC countries examined the whole range of relationships between the Central Banks and the Islamic Banks and submitted a report in 1981 on the Promotion, Regulation and Supervision of Islamic Banks. The report highlighted the need to provide for central bank assistance to the Islamic banks on a basis compatible with the Shariah. 2.2.2 Theoretical Basis and Business Practice of Islamic Banking: From the viewpoint of Islamic Shariah, in order to be justified Islamically, the banking system has to avoid interest. Consequently, financial intermediation in Islamic banking between the bank and the client takes place as a partner rather than a debtor-creditor. The financial activities of modern conventional banks are based on a creditor-debtor relationship between depositors and bank on the one hand and between the borrower and the bank on the other. Interest is regarded by conventional banks as the price of credit reflecting the opportunity cost of money. As interest is prohibited in Islam, commercial banking in an Islamic framework could not be based on the creditor-debtor relationship. The other aspect of the theoretical basis of Islamic banking is that the interest free bank is not risk free. This principle is applicable to two main factors of production, i.e. labor and capital. According to this principle, no payment is allowed to labor, unless it is applied to work, no reward for capital should be allowed, unless it is exposed to business risk. 2.3 Organizational Overview: 2.3.1 Brief History: Shahjalal Islami Bank Limited is named after the name of a saint Hajrat Shahjalal (r) who dedicated his life for the cause of preaching Islam in the east-north part of the subcontinent. It is a Shariah based commercial bank in Bangladesh, was incorporated as a public limited company on 1 st April, 2001 under Companies Act 1994.The bank commenced commercial operation on 10 th May, 2001 by opening its first branch i.e. Dhaka Main Branch at 58, Dilkusha, Dhaka obtaining the license from
Bangladesh Bank, the Central Bank of Bangladesh. Its corporate head office is situated at 10, Dilkusha C/A, Jibon Bima Bhaban, Dhaka-1000, Bangladesh. 2.3.2 Vision of SJIBL: To be the unique modern Islami Bank in Bangladesh and to make significant contribution to the national economy and enhance customer’s trust & wealth, quality investment, employees’ value and rapid growth in shareholders’ equity. 2.3.3 Mission of SJIBL:
a) b) c) d) e) f)
To provide quality services to customers. To set high standard of integrity. To make quality investment. To ensure sustainable growth in business. To ensure maximization of shareholders’ equity. To extend our customers innovative services acquiring state-of-the-art technology blended Islamic principles. g) To ensure human resource development to meet the challenges of time. 2.3.4 Strategies of SJIBL:
a) b) c) d)
To strive for customers best satisfaction & earn their confidence. To manage and operate the bank in the most effective manner. To identify customers’ needs and monitor their perception towards meeting those needs.
To review and update policies, procedures and practices to enhance the ability to extend better services to the customer. e) To train and develop all employees and provide them adequate resource so that the customer needs are reasonably addressed. f) To promote organizational efficiency by communicating company plan, policies and procedures openly to the employees in a time fashion g) To cultivate a congenial working environment.
h) To diversify portfolio both the retail and wholesale markets. 2.3.5 Nature and Legal Status of SJIBL: Name of the Company
Legal Form
Shahjalal Islami Bank Limited A public limited company incorporated in Bangladesh on 1 st April 2001 under the Companies Act 1994 and listed in Dhaka Stock Exchange Limited and Chittagong Stock Exchange Limited.
Commencement of Business
10th May 2001
Registered Office
Jibon Bima Bhaban, Front block (4th floor), 10 Dilkusha C/A, Dhaka-1000
Telephone No.
88-02-9570812, 7160591
Fax No.
88-02-9570809, 9553562
Website
www.shahjalalbank.com.bd
SWIFT
SJBL BD DH
sblho@shahjalalbank.com.bd
Chairman
Alhaj Mohammad Solaiman
Managing Director
Mohammad Ali
Auditors
Tax Advisor
M/S Syful Shamsul Alam & Co., Chartered Accountants, Paramount Heights, 65/2/1 Box Culvert Road (level-6), Purana Paltan, Dhaka-1000 M/S K. M. Hasan & Co., Chartered Accountants, 87 New Eskaton Road, Dhaka
Legal Advisor
Hasan & Associates, Chamber of Commerce Building (6th Floor), 65-66 Motijheel C/A, Dhaka.
No. of Branches
52
No. of Brokerage House
07
No. of ATM Booth
05
No. of SME Centers
05
Off-Shore Banking Unit
01
Authorized Capital
Tk. 4,000 million
Paid up Capital
Tk. 2, 246 million
Face Value per Share
Tk. 100
2.3.6 Organizational Structure: There are different wings to consist the organizational structure of SJIBL. They are as follows:
a) b) c) d) e)
Board of Directors Board Committees Executive Committees Policy Committees Management Team
2.3.7 Board of Directors:
There is a board of Directors of 15 members in the bank. The board of Directors is the apex body of the bank. It appears like this-
Chairman Vice-Chairmen Directors Managing Director Secretary 2.3.8 Name of the Board of Directors:
Chairman
Alhaj Md. Solaiman
Director
Alhaj Engr .Md. Towhidur Rahman
Vice Chairman
Alhaj Md. Abdul Barek
Director
Alhaj Syed Nurul Arefeen
Vice Chairman
Alhaj Shahid
Director
Alhaj Abdul Halim
Director
Alhaj Sajjatuz Jumma
Director
Alhaj Akkas Uddin Mollah
Director
Alhaj Anwer Hossain Khan
Director
Alhaj Khandoker Ahmed
Director
Alhaj Mohammed Faruque
Director
Alhaj A. K. Azad
Director
Alhaj Tofazal Hossain
Director
Alhaj Mohammed Younus
Director
Alhaj Md. Harun Miah
Independent Director
Alhaj Nazmul Islam Nuru
Director
Alhaj Mohammed Farooq
Managing Director
Mohammad Ali
Director
Alhaj Mohammed Hasan
Company Secretary
Md. Emran Hossain
Director
Alhaj Mohiuddin Ahmed
Sponsors
Alhaj Md. Abdul Mannan
Md.
2.3.9 Management Hierarchy:
Sanaullah
Sakib
2.3.10 Policy Committee:
Al matters relating to the principles, rules and regulation, ethics etc. for operation and management of the bank are recommended by the committee to the board of directors. 2.3.11 Management Team:
Managing Director Executive Vice-President Vice-President Sr. Asst. Vice-President Asst. Vice-President 2.4 Products and Services of SJIBL: The bank is managed by a team of professional executives and officials having profound banking knowledge and experience in different sectors management and operation of banking. During the short span of time SJIBL so far introduced a good number of attractive deposit products to broaden the resources base and also investment products to deploy the deposit products. SJIBL always try to introduce a wide verity of attractive deposit, investment and services for suiting taste and requirement of the client. 2.4.1 Products: Bank means mobilizing fund from surplus unit and deployment of fund for deficit unit. SJIBL mobilize its fund from surplus unit through different types of deposit schemes and deployment this fund for deficit unit through various investment schemes. So the main products of SJIBL are different kinds of deposits and investment schemes. 2.4.2 Deposit Scheme: Deposit is the “life-blood� of a bank. Bank has given utmost importance in mobilization of deposits introducing a few popular and innovative schemes. The mobilized deposits were ploughed back in economic activities through profitable and safe investment.
This type of deposit schemes of SJIBL are:
a) b) c) d) e) f)
Mudaraba Monthly Income Scheme Mudaraba Double/Triple Benefit Scheme Mudaraba Monthly Deposit Scheme Mudaraba Millionaire Scheme Mudaraba Hajj Scheme Mudaraba Housing Deposit Scheme
g) h) i) j) k)
Mudaraba Cash Waqf Scheme Mudaraba Lakhapoti Deposit Scheme Mudaraba Mohor Deposit Scheme Mudaraba Education Deposit Scheme Mudaraba Marriage Deposit Scheme
Other than these deposits schemes SJIBL also operate some traditional deposit schemes these are: a) Al-Wadia Current Deposit
b) c) d) e) f)
Mudaraba Saving Deposit Mudaraba Short Notice Deposit Mudaraba Term Deposit Receipt MTDR-Special Scheme Mudaraba Foreign Currency Deposit
The total deposit of SJIBL stood at TK. 36,484.24 million as on 31 st December, 2009 as against TK. 22,618.19 million of 31st December, 2007, registering increase of TK. 13,866.05 million. The deposit mix of the bank as on 31st December, 2009 is as bellow: Table: Deposit Mix of 2010 Sl. No. Nature of Deposit 1 Al-Wadia Current Deposit 2 Mudaraba Saving Deposit 3 Mudaraba Short Notice Deposit 4 Mudaraba Term Deposit 5 Mudaraba Scheme Deposit 6 Other Deposits Total
Taka in Million 1,266.56 1,863.52 765.11 21,190.16 9,426.65 1,972.24 36,484.24
% of Total Deposit 3.47% 5.11% 2.10% 58.08% 25.84% 5.40% 100.00%
Deposit Mix of 2008 5%
3%
5%
2%
26%
Al Wadia Current Deposit Mudaraba Savings Deposit Mudaraba Short Notice Deposit Mudaraba Term Deposit Deposit in Scheme
59%
Other Deposits
Trend of Deposit from 2004 to 2008
In million Taka
40,000.00
36,484.24
30,000.00 20,000.00
18,090.65
10,000.00
9,091.66
22,618.18
Total Deposit
12,204.63
0.00 2004
2005
2006
2007
2008
Year
2.4.3 Investment Schemes: The special feature of the Investment policy of SJIBL is to invest on the basis of profit loss sharing system in accordance with the tenets and principles of Islamic Shariah. Earning of profit is not only the motive and objective of the bank’s investment policy rather emphasize is given in attaining social good and in creating employment opportunities. The investment and credit department is very important department of a bank as the money mobilized from ultimate surplus units (Investors) are allocated through this department to the ultimate deficit unit (Borrowers). The success of this department keeps a great influence over the profit of a bank. Failure of this department may lead the bank to huge losses or even to bankruptcy. So, special care should be given to this department. The bank entertains good investment clients, having credit worthiness and good track record. The bank has different profitable investment projects these are:
a) b) c) d) e) f) g) h)
Mudarabaha Bi-Muajjal Hire Purchase and Ijara Investment Against L/C Bill Purchase/Discounted Investment Against Scheme Deposit Quard Others
The bank has got a few investment schemes to provide financial assistance to comparatively less advantage group of people; which are:
a) b) c) d)
Household Durable Scheme Small Business Investment Scheme Small entrepreneur Investment Program Medium Entrepreneur Program
e) f) g) h)
Housing Investment Scheme Rural Investment Program Car Investment Scheme Woman Entrepreneur Investment Scheme
Total investment of the bank stood at TK. 32,918.77 million as on 31 December, 2009 as against TK. 20,616.61 million of 31 December, 2007 registering an increase of TK. 12,302.16 million. Mode wise investment portfolio of SJBL as on 31 December, 2009 is given below: Table: Investment Portfolio Of 2008 Sl. No. Mode of Investment 1 2
Murabaha Bi-Muajjal
3 4 5 6
Hire Purchase & Ijara Investment Against L/C Bill Purchase/Discounted Investment Against Scheme Deposit Quard Others Total
7 8
Taka (in Million) 7,353.61 13,224.9 4 5,463.44 106.13 3,721.76 557.61 168.33 2,322.95 32,918.7 7
Percentage of Total Investment 22.34% 40.17% 16.60% 0.32% 11.31% 1.69% 0.51% 7.06% 100.00
Investment Portfolio of 2008 7%
2%1%
Murabaha
22%
11%
Bi-muajjal
0%
Hire-Purchase & Ijara Investments against L/C Bill Purchased & Discounted Investment against Scheme Deposits
17%
Quard Others
40%
Trend of Investment from 2004 to 2008
In million Taka
40,000.00 32,918.77
30,000.00 20,000.00 10,000.00
7,148.68
10,590.27
15,515.79
20,616.61
Total Investment
0.00 2004
2005
2006
2007
2008
Year
Deposit & Investment Position
Deposit
40,000.00
36,484.24 32,918.77
35,000.00 In million Taka
Investment
30,000.00 25,000.00 20,000.00 15,000.00 10,000.00
9,091.66 7,148.68
12,204.63 10,590
18,090.65 15,515.49
22,618.18 20,616.61
5,000.00 0.00 2004
2005
2006 Year
2.4.4 Services:
2007
2008
Shahjalal Islami Bank Limited is an industry standard, Islami Shariah and latest technology based modern bank. The bank is equipped with state-of-the-art technology and committed to provide technology based modern banking to its valuable customers. Services provided by SJIBL are:
a) b) c) d) e) f)
On-Line Banking Services SJIBL VISA Card SMS / Push Pull Service Personnel Management Information Systems (PMIS) SWIFT REUTERS etc.
• 2.4.4.1 On-Line Banking: To provide better services to the valued customers using the latest technology and electronic media competing with other private banks to set and establish full automated, on-line, centralize banking systems interfacing (connecting software) with all delivery channels link, like: ATM (Automated Teller Machine), POS (Point of Sale-Fund Transfer Machine for purchasing at any shop/service center etc.), any branch banking, Home banking, Tele banking, and Internet banking etc.
• 2.4.4.2 SJIBL VISA Card: Card is considered as a new dimension of product resulting from technological development in the banking arena. In line with our affiliation with VISA International for VISA ATMs and POS, VISA Cards are already introduced.
• 2.4.4.3 SMS / Push Pull Service: This is a service provided by the bank through mobile phone. This new technology based service will helps the bank to attract new customer base. Through SMS or Pull Push service client will be facilitated with cell phone based banking service with a fast secured and economical way.
• 2.4.4.4 SWIFT: Society for Worldwide Inter-Bank Financial Telecommunication (SWIFT) is a bank owned cooperative serving the financial community worldwide. The SWIFT Transport Network (STN) is a dedicated global network for secure communication between SWIFT Customers. SJIBL has introduced this SWIFT alliance entry system firstly in October 2002 and introduced SWIFT alliance access in October 2003. 2.5 Current Position of SJIBL: Despite changing macroeconomic condition and volatile money market and foreign exchange market SJBL was successfully in achieving much higher than national growth in deposit, investment (loan),
export, and import and remittance business. The bank has maintained and achieved strong position in all key areas covering capital adequacy, asset quality, sound management, good earning and strong liquidity. Here shows current position of SJBL in different areas. 2.5.1 Equity: The Bank’s Equity is divided into two parts i.e. Tier-I and Tier-II capital. Tier-I includes paid-up capital, reserve and retained earnings and Tier-II includes general provision on unclassified investments and exchange equalization account. The authorized capital of the bank is TK. 4,000 million and paid-up capital of the bank is TK. 2,246 million as on 31 st December, 2008. Total equity was TK. 4,069 million as on 31st December, 2008. The competitive position of Equity for the year 2008 and 2007 is given belowTable: Total Equity Sl. Particulars Tier-I Capital (Core Capital): a) Paid-up Capital b) c)
2008 2,245.9 8 823.55 535.91 3,605.4 4
Statutory Reserve Retained Earnings Sub Total
Tier-II Capital (Supplementary Capital): a) General Provision b) Exchange Equalization Sub Total Total Equity
463.48 0.17 463.65 4,069.0 9
2007 1,871.65 510.39 405.69 2,787.73 252.98 0.17 253.15 3,040.88
Equity Composition of 2008 11%
0% Paid-up Capital
13%
Statutory Reserve Retained Earnings 56% 20%
General Provision Exchange Equalization
In million Taka
Equity Composition from 2004 to 2008 5,000.00 4,000.00 3,000.00 2,000.00 1,000.00 0.00
4,069.09 3,040.88 340.06 2004
848.35 2005
Equity
1,362.57 2006
2007
2008
Year
2.5.2 Capital Adequacy: Total equity of the bank as on 31 st December, 2007 was TK. 3,040.88 million and total equity stood to TK. 4,069.09 on million at 31st December, 2008, which was 13.81% of the Risk weighted Assets as against the requirement of 10.00%. The core capital was 12.24% of Risk weighted Assets as on 31 st December 2009 as against requirement of 5%.
Percentage
Capital Adequacy Position from 2004 to 2008 18% 16% 14% 12% 10% 8% 6% 4% 2% 0%
Requirement Actual
2004
2005
2006
2007
2008
Year
2.5.3 Branch Network: The bank has been operating with a network of 44 branches all over the country. In 2009, the bank has opened 11 new branches. Among these branches, 5 are located in Dhaka and rest of them is in other districts of the country. Here shows zone wise branch distribution of SJIBL:
Table: Zone-wise number of Branches Zone
Number
Dhaka
26
Chittagong
6
Sylhet
5
Khulna
2
Rajshahi Offshore
Banking
4 Unit 1
(OBU) 2.5.4 Human Resources Development: The Bank always laid emphasis on human resource development. The Bank believes in the factor that helps the banks survive is closely interlinked with the quality of service and satisfaction of the requirements of the client and that directly depends on the qualification and efficiency of the employees. To attract and retain qualified and efficient staff, the Bank has formulated a number of well thought policies for the welfare of its employees, in the form of Gratuity Fund, Social Security Fund, Employees House Building Investment Scheme, Employees Car Financing Scheme, Benevolent Fund & Employees House Furniture Allowance etc. Total number of manpower of the Bank is more than 1,100 now against 878 as on 31st December, 2009. 2.6 Information Technology: Main objective of the bank is to take care of different economic group of the society and meet their all type of banking requirements stretching its service to the door step of the people with the help of information technology gradually. SJBL is providing customer service through online facilities. SJIBL’s ultimate aim is to enable its respected and valued clients to shop under the same roof. In line with that SJIBL VISA Card, SMS/Push Pull services have already been introduced. Beside these, clients are also being facilitated by the service of REUTERS, SWIFT, and Western Union Money Transfer etc. 2.7 Corporate Governance: The Board of Directors of the bank consists of successful distinguish personalities emerging from area of trade, commerce and industries. The bank conducts it’s business and operations under the policy, directions and guidelines of the Board. The bank has also a Shariah Council consisting of prominent Faquih, Economists, Lawyers, Bankers to advise and guide the Board and the Management of Shariah matters relating to the business and operations. Under the able guidance of the Board of Directors and the Shariah council, the professional management team carries out the business operation of the bank, ensuring good governance practicing sound, best corporate and risk management process. The result that was achieved by the bank so far is due to the constant guidance, cooperation and support of the Board and Shariah Council and devoted, dedicated and hard work of the management team and all functionaries of the bank.
2.8 Highlights of Performance of SJIBL: Despite challenging macroeconomic condition and volatile money market and foreign exchange market, SJIBL was successfully in achieve much higher than national growth of deposit, investment(loan), export, import and remittance business. The Highlights of Performance of SJIBL for the year 2009 against 2008 is given bellow through a table:
2.8.1 Income: Investment Income: Total Investment Income of the bank as at 31 st December, 2009 was TK. 4,428.89 million as against TK. 3071.41 million of the preceding year registering 44.20% growth over last year, which was 83.80% of the total income against 85.58% of 2007.
Non-Investment Income: Total Non-Investment Income of the bank was TK.856.49 million at 31 December,2009 against TK. 517.43 million of the preceding year registering 65.53% growth rate over last year, which was 16.20% of the total income compared to 14.42% of 2007. st
2.8.2 Expenditure: Profit Paid on Deposit: Bank distributed profit of TK. 2,962.40 million among the Mudaraba depositors in the year 2008 against TK. 1960.02 million in the year 2007 which is 66.89% of the Investment Income earned from deployment of Mudaraba fund and 85.23% of total Expenditure of 2008 against 86.20% of 2007. Operating Expenses: Total operating expenses as on 31st December, 2008 was TK. 513.19 million against TK. 313.82 million of 2009, which was 14.77% of the total expenditure of the year 2008 against 13.80% of 2009. 2.8.3 Operating Profit: A summary of operating result of the bank as on December 2008 vis-Ă -vis the position of December 2008 is shown below: Table: Operating Result of 2007 & 2008 Particular Total Income Less: Total Expenditure Net Profit Before Provisions & Taxation Less: Provisions Net profit Before Taxation Less: Provisions for Taxation Net Profit Appropriation: Statutory Reserve Retained Earning
(Amount in Million Taka) 2009 2008 5,285.39 35,88.84 3,475.59 22,73.83 1,809.80 13,51,01 244.00 98.70 1,565.80 12,16.31 748.09 569.32 817.71 646.99 313.16 504.55
243.26 403.73
2.9 An Overview of college Gate Branch of SJIBL: College Gate Branch of SJIBL started its operations on 14 th May 2009. The branch is located at Union Centre (1st Floor), 1/5 Mohammadpur Housing Estate, College Gate, Mirpur Road, Dhaka-1207. Office floor is spacious that can accommodate good number of customers comfortably.
Now under the charge of SAVP, Md. Hasan Imam, the branch has been performing very well. Under his efficient handling, the branch has already been able to introduce itself as one of the best performers among all other branches of SJIBL. : 2.10: Future Outlook of SJIBL: “Business policy and six years perspective plan” of the Bank from 2007 to 2012 has been formulated to attain the financial strength, sustainable growth and operational efficiency. To protect the interest of the stakeholders, bank has formulated the six years perspective plan for consolidation of the growth and profitability. During the period of perspective plan, Bank has the main objective to attain the height operational excellence and consolidation to turn the bank into a dynamic Islamic Bank in the country. During the period from 2007 to 2012, The Bank has the plan to regain its excellence in all the core areas of operations and business. During this period, new and potential avenues of Business in all areas of operation to be explored and expanded through the network of existing 26 branches and more new branches to be opened gradually during the plan period subject to permission of Bangladesh Bank. The financial position and overall achievement of the Bank shall be reviewed and evaluated in the light of the Annual Budget and Business plan on a quarterly basis in every year. Necessary change, adjustment, modification & re-allocation shall be made after periodical review keeping the real scenario in view. All out efforts shall be made for promotion and improvement of quality-investment through effective supervision, control, follow-up and monitoring in order to lessen the quantum of over dues, to arrest further over dues and to recover, regularize the over dues and declassify the classified investments. Adequate care & caution to be exercised for compliance with 05 core risks as per Bangladesh Bank’s Policy/instructions during the planned period. Asset-Liability of the Bank shall be managed effectively through ALCO to avoid Liquidity Risk, profit rate risk, operational risk and other risks. SJIBL is looking forward to see such a bright day in the years to come 2.11 Social Welfare Activities of SJIBL: With a view to proving financial assistance to the poor and needy people of the society and also for the welfare of the community, Bank has established “Shahjalal Islami Bank Foundation” the foundation among others has also objective to provide health care, relief & rehabilitation, education, dawa, distribution of winter cloths during the winter etc. At present “Shahjalal Islami Bank Foundation” has a planning to establish the following projects soon:
a) Shahjalal Islami Bank International School & College b) Shahjalal Islami Bank Hospital 2.12 Manpower Position of SJIBL Foreign Exchange Branch:
2.13 Significant Accounting Policy: Foreign Currency Translations: The transactions in foreign currencies are converted into equivalent Taka currency using the ruling exchange rates on the dates of such transactions. At the balance sheet date related assets and liabilities are converted to Taka using exchange rates prevailing on that date. Basic Earnings per Share: This has been calculated by dividing the basic earnings by the weighted average number of ordinary shares outstanding during the period as per IAS 33 Earnings per Share�. Diluted Earnings per Share is not required to be calculated for the year, as there exists no dilution possibilities during the year.
Statement of Liquidity: The liquidity statement of assets and liabilities as on the reporting date has been prepared on residual maturity term as per following basis;
a) Balance with other banks and financial institutions, investment in securities are on the basis of their maturity term. b) Investments (Loans & Advances) are on the basis of their residual maturity term. c) Fixed assets are on the basis of their useful life. d) Other assets are on the basis of their adjustment. e) Financing (borrowing from Bangladesh Bank as per their maturity f) Deposit and other accounts are on the basis of their maturity term and behavioral past trend. g) Other long-term liability on die basis of their maturity term. h) Provisions and other liabilities are on the basis of their settlement.
Off Balance Sheet Items: Under general banking transactions, liabilities against acceptance, endorsement and other obligations and bills against which acceptances have been given and claims exist there against, have been shown as Off Balance Sheet items. Taxation: a) Current Tax: Being a financial institution the bank is in practice of keeping provision for income tax in accordance with income tax ordinance 1984 now in force in Bangladesh. For current year tax rate applicable for the bank is 45% on taxable income. b) Deferred tax: The Bank has adopted deferred tax accounting policy as per Bangladesh Accounting Standard AS) 12. Accordingly deferred tax liability/asset is accounted for all temporary riming differences arising between the tax base of the assets and liabilities and their carrying value for financial reporting purpose. Deferred lax is computed at the prevailing tax rate as per Finance Act 2007. Retirement Benefits: a) Provident Fund: Provident fund benefits are given to the eligible staffs of the Bank in accordance with the rules of the provident fund. The Fund is administered by a Board of Trustees and is funded by fixed contributions equally from the employees and the bank. b) Gratuity: Gratuity fund benefits are given to the staff of the bank in accordance with the approved Gratuity fund rules. The gratuity fund is under process with National Board of Revenue (NBR) to he recognized gratuity fund. The fund is operated by a Board of trustees consisting of 3 (Five) members of the hank. The gratuity is calculated on the basis of last basic pay and payable at the rate of one month’s basic pay for every completed year of service, Gratuity so calculated are transfer to the fund and charged to expenses of the batik. c) Benevolent Fund: The Benevolent Fund for the regular and confirmed employees of SJIBL was established in the ear 2007. This fund is mainly used for payment of scholarship to the meritorious students among the children of SJIBL’s officers and sub-staff to allow short-term quard/grant for the unexpected and certain needs of the staff of SJIBL like accident, clinical treatment marriage ceremony of the sub-staff and their dependents. 2.14 Areas of Operation of SJIBL: The whole activities of the Foreign Exchange Branch of SJIBL are divided in to three major areas. These are: General Banking: General banking is the starting point of all the banking operations. This department does the most important and basic works of the bank. It is also the department, which provides day-to-day services to the customers. All other departments are linked with this department. It also pays a vital role in deposit mobilization of the branch. SJIBL provides different types of accounts, locker facilities and special types of saving scheme under general banking.
Investment: The special feature of the Investment policy of Shahjalal Islami Bank Limited is to invest on the basis of profit loss sharing system in accordance with the tenets and principles of Islamic Shariah. Earning of profit is not only the motive and objective of the bank’s investment policy rather emphasize is given in attaining social good and in creating employment opportunities. Foreign Exchange: Foreign Exchange means foreign currency and it includes any instrument drawn, accepted, made or issued under clause (13), Article 16 of the Bangladesh Bank Order, 1972. All deposits, credits and balances payable in any foreign currency and draft, travelers cheque, letter of credit and bill of exchange expressed or drawn in Bangladeshi currency but payable in any foreign currencies.
3.1 General Banking: General banking is the starting point of all the banking operations. This department does the most important and basic works of the bank. It is also the department, which provides day-to-day services to the customers. All other departments are linked with this department. It also pays a vital role in deposit mobilization of the branch. SJIBL provides different types of accounts, locker facilities and special types of saving scheme under general banking. For proper functioning and excellent customer service this department is divided into various sections namely as follows. 3.1.1 Accounting Opening Section: Bankers and Customer relationship established through opening an account. It binds the banker and customer into a contractual relationship. There are two types of account i.e. deposit account and investment account. Generally account opening means to open a deposit account. Deposits are the lifeblood of a bank, which is invested, in a bank through opening an account. This section of general banking of the SJIBL deals with opening of different types of accounts. It is also deals with issuing of checkbooks and different deposits books to the different accounts openers. A customer can open different types of accounts through this department. 3.1.2 Cash Section: Cash is the lifeblood of all financial activities. Cash section is a very sensitive point of the branch. This section deals with all types of negotiable instruments and it includes vault, used as the store of cash, instruments. The vault is insured up to TK.20 lac. Insured amount yet to be enhanced to Tk. 40 lac. Operation of this section begins when the banking hour starts. Cash officer begins his/her transaction with taking money from the vault, known as the opening cash balance. Vault is kept in a more secured place. The amount of opening cash balance is entered into a register. After whole days’ transaction, the surplus money remains in The cash counter is put back in the vault and known as the closing balance. If the cash stock goes beyond this limit, the excess cash is then transferred to SJIBL Foreign Exchange branch. The main functions of this section are a) Cash Receive
b) Cash Payment Cash department is the most vital department of a bank and it is call blood of a bank. It is a platform to communicate with customers. Cash department receives & pays cash directly. In the cash department there are following register:
a) b) c) d) e) f) g) h)
Vault register Cash receive register Cash payment register Cash balance register Rough cash balance book Cash remittance register Key register Cash position memo
Cash Receive: Cash is the life of a bank. Different types of from are use for cash deposits for different types of accounts. Cash may be received by the following ways:
a) Current of Savings account pay-in-slip b) Credit voucher 1. Different types of instrument remittance (TT, DD, PO etc.) are received by respective forms. c) Bills like National Life Insurance Co. Ltd.
d) Share collection e) Different types of scheme Cash payment: Cash is paid in payment counter against the following instrument:
a) b) c) d) e)
Cheques Cash debit voucher Pay-in-slip Pay Order, DD etc. Bank’s expense also paid to outsider through cash debit voucher.
Procedure: a) Receive of the cheques with a signature behind it.
b) c) d) e) f) g) h)
Scrutinize it by an authorized officer. Submit to computer-to-computer section for checking the available balance. Cancelled & seal up “Pay in Cash” and cancellation through sign up. Again submitted to computer section for debiting the party A/C and seal up “Posted”. Send to cash counter – payment officer. Cash officer checks the cancellation, seal and seal up “Cash Payment” Entry the payments register.
i) Take another signature of payee behind the cheque and pay cash.
Cash Balance: At the end of the transactions, the following tasks are to be completed:
a) Sum of total received b) Sum up total payment c) Total receiving + Opening balance – Total payment = Closing balance for that day & opening balance for the next day. d) Check it with computer sheet.
e) Counting cash. f) Entry the cash balance register. g) Write cash position memo with denomination. • 3.1.2.1 Sorting and Stitching: Sorting: At the end of the day, the amount of cash has to be sorted out in order to identify the different types of notes, say- 500, 100, 50, 20, 10, 5 and so on. Hundred pieces of any type note create a packet and ten packets make a bundle. In this way, the cash is actually sorted out. Stitching: After sorting out the cash, packets are stitched along with a slip bearing the name of the bank, total number of notes and the signature of the cash-in-charge. Two round seals are given at both sides of the packet.
• 3.1.2.2 Vault Opening: The vault opened with Three different keys of Three respective authorized officers. The officers are:
a) Manager of the Branch b) Deputy Manager of the Branch c) Cash – in – Charge Office Strong room has two keyholes opened by three officers respectively by three keys of cash. Generally sub-manager of the Branch bears authority absence of manager. Grill door one keyhole opened by – two keys of two officers and bring out following thing: Cash, Vault register, Receive register, Payment register, Balance Book, security station. Enter the amount of cash withdrawal from the vault register. Vault limit: Vault is the very secret place to keep money in the bank. Usually vault is made of very hard material like iron or steel, generally it is fireproof, damp-proof. The vault has a fixed limit too. The limitation depends on the regular transaction of the branch. If the amount exceeds its limit, the extra money should be sent to the Bangladesh Bank. The vault limit of the College Gate Branch is Tk.1 (one) crore.
Vault Closing: As far as the vault closing concern, the concerned officer should look to the following points carefully:
a) Cheque receives, Payment, Cash balance, Vault register signature. b) Signature of the computer sheet. c) Count physical cash. d) Keep cash in safe. e) Bundle in safe. f) Loose peak of the tray. g) Loose cash notes & coins on the tray. h) Keep different registers. i) Keep security stationeries. j) Close Safe. k) Check the rifle & cartage. l) Count cartage & entry in register. m) Close Grill door & Vault room’s door. 3.1.3 Clearing Section: According to the Article 37(2) of Bangladesh Bank Order, 1972, the banks which are a member of the clearing house are called as Scheduled Banks. The scheduled banks clear the cheques drawn upon one another through the clearing house. This is an arrangement by the central bank where every day the representative of the member banks sits to clear the cheques. For clearing there is a department in every Bank. This department receives cheques, drafts and like instruments from its customers for the purpose of collection with a deposit slip over the counter crediting their accounts. Clearing of cheque is done through the clearing house in Bangladesh Bank. Every day the first hour starts at 10:00 a.m. and returns house at 6:00 p.m. Here are the types of cheque clearing: Inward Clearing Bills: Inward Clearing Bills refers the instruments drawn on SJIBL,College Gate. Branch received from other banks in the clearing house by their representative(s).
Cheques are directly sent to the respective branch
OBC received along the instrument by the respective branch
When IBCA comes, customer’s account is credited.
Figure: Settlement Process of Inward Clearing Bills
Entry passed in OBC register of that branch
IBCA is sent from that branch to this branch.
Outward Clearing Bills: Outward Clearing Bills refers the instruments drawn on the other banks received by Shahjalal Islami Bank Ltd. Branch. They are of three kinds as follows: C.G . Branch collects cheques
IBDA along with bills are sent to C.G. Branch.
These bills are sent to clearing house from C.G. Br. through C.G Branch
Depositor’s account is credited with SJIBL C.G. Branch
Figure: Settlement Process of Outward Clearing Bills 3.2 Deposit Mobilization of SJIBL: Bank account is a contractual relationship between a bank and the customers. It is the best way for a customer to build relationship with the bank. Like interest-based conventional banks, the main function of Shahjalal Islami Bank Limited (SJIBL) is to mobilize saving and provide financial support to the entrepreneurs. Depositors receive interest in a predetermined rate for their deposits make with an interest based banks, where SJIBL neither pay not receive interest and mobilizes saving of the common people in line with Islamic Shariah. Deposit account can take in a various forms. such as:
a) Al – Wadiah Current Deposit (ACD) b) Mudarabah Savings Deposit (MSD) c) Short – Notice Deposit (SND) 3.2.1 Al-Wadiah Current Deposit (AC): Shahjalal Islami Bank Limited receives deposits in its Al – Wadia Current Account. It has some similarity with the current account of conventional bank. The term Al – Wadiah Current Deposit means deposit of money allowing somebody to sue it. Banks being trustee preserves and keeps or in safe custody of what is deposited. Depositors feel safe in keeping their money with the bank and take transaction facilities. Bank provides assurance of returning money to the depositors on demand. In the process of opening Al-Wadiah Deposit, the bank gets approval of the depositors regarding the use of the deposited money and earns profit out of their development. Any losses incurred by way of such investment are totally borne by the bank. Thus, the depositors don’t take the risk of losses with Al-Wadiah Current Deposit; they also don’t expect any profit from it. Depositors are provided with chequebook. They can withdraw or deposit any amount as and when they like. Bank may charge a fee in the account. Al-Wadiah Deposit are short terms and very uncertain, thus banks have to be very useful in the investment of money from this account. 3.2.2 Mudaraba Saving Deposit (MSD): Mudaraba Saving Deposit (MSD) is open by the lower and middle people who wish to save a part of their incomes to meet their future need intend to earn an income from their savings. It aims at
encouraging savings of non-trading persons(s), institution(s), society, etc. by depositing small amount of money in the bank. Restriction on withdrawals and deposit:
a) The number of withdrawals over a period of time is limited. Two withdrawals per week are permitted. But more than that no interest will be paid on rest amount for that month. b) The total amount of one or more withdrawal on any date should not exceed 25% of the in the accounts unless 7 (seven) days advance notice is given. c) The customer may deposit any amount in the savings bank account subject to a minimum of Tk.2000/- in the account. Payment of Profit: Shahjalal Islami Bank Limited is proving 4% profit on Mudaraba Saving Deposit. Opening a Saving Account: are required:
For Operating a Mudaraba Saving Deposit following documentation
a) Two copies of passport size photographs of accountholder and one copy passport size photo of nominee. b) Introductory reference.
c) National ID Card. General Precautions of opening an MSD Account: After opening an account and before issuing a Cheque book the authorized officer should check the account operating form for the complete information, which is given by the customers:
a) b) c) d) e) f) g) h) i)
Name of the account holder. Photos of the account holder. Date of opening Types of account. Present and permanent address Name of the nominee and their address. Initial deposit Specimen signature in the form in the “Specimen signature card�. Name, address and the account number of the introducer.
3.2.3 Mudaraba Short Notice Deposit (MSND): Shahjalal Islami Bank Limited also receives term deposit from the clients. The SND account is different from the interest-based banks. It is also a Time Deposit account. The formalities for opening of this account are similar to those required for Al-Wadiah Current Account. The only difference is that seven (7) days notice is required for withdrawal of any sum and profit is paid. The rate of profit for this account is 3.50%. If the withdrawal on demand is desired, it may be paid subject to the forfeature for the period of notice or the expired of notice.
The Shahjalal Islami Bank Limited (SJIBL) is containing some Deposit Scheme, which are the really profitable for bank and customer. The Bank maintains Shariah –based transaction with their customer by different Scheme those are:
a) b) c) d) e) f)
Monthly Deposit Scheme (MDS) Mudarah Term Deposit Receipt (MTDR) Monthly Income Scheme (MIS) Multiple Profit Deposit Scheme (MPDS) Millionaire Scheme (MS) Hajj Palon Scheme (HS)
3.2.4 Monthly Deposit Scheme (MDS/DPS): This account open very easy and there are no fixed day to open. Account holders do not need any savings account if he/she directly pays their monthly installment. Account holders carefully complete the MDS form and attests two copies passport size photograph one nominee and other own with form. Account holders can pay advance to continue their installment or can give permanent instruction from his/her savings account. In this term, the account holders are bound to pay Tk.50 for transferred and Tk.5/- for service charge. If the account is close before the maturity then profit will be calculate according to saving rates. If a depositor fails to pay calculate as Savings rate. But for the first sixmonth no profit will be calculate. Nominee will enjoy the profit will in absence of the accountholder. Depositor will get the profit after the matured according to following table: Installmen t Period
100
250
500
1,000
2,000
5,000
10,000
25,000
50,000
5 Years
7,405
18,51 3
37,02 5
74,050
1,48,10 0
3,70,25 0
7,40,500
18,51,25 0
37,02,500
8 Years
13,59 5
33,98 8
67,97 5
1,35,95 0
2,71,90 0
6,79,75 0
13,59,50 0
33,98,75 0
67,97,500
10 Years
18,68 0
46,70 0
93,40 0
1,86,80 0
3,73,60 0
9,34,00 0
18,68,00 0
46,70,00 0
93,40,000
3.2.5 Mudaraba Term Deposit Receipt (MTDR): In this mood, the client invest money for a fixed time period. If a customer withdraw his/her money before one month than he/she will not get any kind of profit. On the other hand, after the maturity period, if client don’t withdraw his/her money than it will be auto renewed with imposed profit for the next days. After the announced yearly profit or loss, if bank felt in loss posting, then the depositor bound to incur the loss. In absence of account holder the selected nominee will get the money. Account holder bound to bear any kind of tax or excise duty according to government circular. The profit rates of this account are:
Time Period of Deposit 3 Months 6 Months 1 Year
Up to Tk. 1 (One) Crore 9.25% 9.00% 9.00%
3.2.6 Monthly Income Scheme (MIS): This scheme is very popular in our country, job retreat people opens this scheme. And which people are not able to do business than they are wanting to safe from risk and they open it. It is the scheme for profit earning. In this account depositor can deposit minimum of Tk. 1,00,000/- and above. Depositor will get Tk. 675 per lac and it is the fixed deposit for 3 (three) years. If the accountholder to want to close his/her account before maturity date than he/she will get profit accordance with savings rate that is 4%. In the absence of accountholder, the specified nominee will get the whole benefit. The profit rates of this account are: Period of Scheme 3 Years
Taka per Month Provisional Rate Tk. 675 per month per 8.10% lac
3.2.7 Multiple Benefit Scheme: The Shahjalal Islami Bank gives the facility to the client by the Islamic Shariah Mudaraba rules and regulations. In this scheme depositors can deposit more than Tk.10,000 for 8 years and 6 months and after the maturity date accountholder will receive double than his/her deposited amount; and for 13 years and 3 months where after the maturity period, the account holder will receive triple than his/her deposited amount. Depositor will get 80% investment facility by deposit the deposit receipt. The profit rates of this account are: Multiple Benefit Scheme Double Benefit Triple Benefit
Time Period 8 years and 6 months 13 years and 3 months
Provisional Rate 8.20% 8.32%
3.2.8 Millionaire Scheme: It maturity is long than other scheme. Generally this account is designed for children. Here, applicants are the selected people for operating the account on behalf of the accountholder. The depositor should to deposit the account within first 15 days of the month; neither will he/she be designated as debtor to the bank. If 15th date is the off day then the next working day will be schedule date. Accountholder can open more one account this Branch. Depositor will get 80% loan facility against the deposit money. No cheque book will be issued for this account, but the bank will provide deposit book. The profit rate based on different amount and time are given below: Millionaire Scheme
Deposit Amount (Tk.)
per
Month Provisional Rate Yearly Rate
12 years 15 years 20 years 25 years
4,060 2,770 1,585 950
8.25% 8.40% 8.50% 8.60%
8.56% 8.73% 8.85% 8.94%
3.2.9 Hajj Scheme: Hajj is compulsory for all who are the ability to perform hajj at that cause Hajj is important for all. Hajj is the important way for the Islam but many people have the interest but there have no ability. Many people create the ability but at that time they are physically weak. At that cause Shahjalal Islami Bank open this scheme. Duration of the scheme: a) This account is duration time is 1 year to 10 years.
b) 12 monthly schemes within one year. Duration Monthly Installment (Year) (Tk.) 1 2 3 4 5 6 7 8 9 10
22,000 11,000 7,200 5,275 4,150 3,400 2,875 2,475 2,175 1,925
Amount Duration (Tk.) 2,76,000 2,87,925 2,94,975 3,00,800 3,09,000 3,17,550 3,27,600 3,37,250 3,49,050 3,59,575
Given
after Yearly Rate
8.45% 8.51% 8.54% 8.55% 8.55% 8.55% 8.55% 8.56% 8.56% 8.56%
The way of the payment: a) Scheme must pay at 25 every month if this date is holiday at that time it will pay at next working day. b) If scheme pay in cheque at that time cheque clearing must at 25 date month. c) If the accountholder is give the permanent paying order at that time charge 50 taka and per scheme is 5 taka. 3.2.10 Some New Deposit Schemes:
a) b) c) d) e) f)
Special Term Deposit Lakhapoti Deposit Scheme Mohor Deposit Scheme Education Deposit Scheme Marriage Deposit Scheme Housing Deposit Scheme
g) Small Business Deposit Scheme 3.3 Other Related Issues on General Banking: 3.3.1 General Required Documents for Opening an Account: For an Individual Customer:
a)
Copy the passport, if available or Employer’s National ID Care, Certificate or Commissioner’s Certificate or Letter of Introduction by a person accepted to the Bank.
b) c)
TIN Certificate, if applicable. Two recent passport size photographs duly attested by the Introducer.
For Sole Proprietorship: a) Copy of Trade License. b) Two recent passport size photographs of the proprietor/Signatory duly attested by the Introducer. c) Copy of the passport the proprietor/Signatory, if available, National ID Card/Commissioner’s or Chairman’s Certificate or Letter of Introduction by a person accepted to the Bank. d) TIN certificate. For Partnership: a) b) c) d) e) f) e) f)
Copy of Partnership Deed of the Firm. List of Partners with their address and phone number. Copy of Trade License. Extract of Resolution of the Partners of the Firm for opening the account and authorization for its operation duly certified by the managing Partner of the Firm. For Registered Partnership, Certificate of Registration of the Firm along with duly certified copy of the Partnership Deed. Two recent passport size photographs of each Partner/Signatory duly attested by the Introducer. Copy of Passport of each Partner/Signatory, if available, National ID Card/Commissioner’s or Chairman’s Certificate or Letter of Introduction by a person acceptable to the Bank. TIN Certificate.
Private & Public Limited Company:
a) b) c)
Certified true copy of the Memorandum and Article Association of the Company.
d)
Latest list of Directors with address and phone number along with Form XII.
Certified true copy of Certificate of Incorporation of the Company. Certificate true copy of Certificate of Commencement of Business of the Company in case of Public Limited Company.
e)
Extracts of duly adopted Resolution of the Board of Directors of the Company for opening the Account and authorization for its operation duly certified by the Chairman/Managing Director of the Company.
f) g) h)
Copy of Trade License.
i)
TIN Certificate.
Two recent size photographs of each signatory duly attested by the introducer. Copy of the passport of each signatory, if available, National ID Card/Commissioner’s or Chairman’s Certificate or Letter of Introduction by a person acceptable to the Bank.
Association/ Club / Trust / Society/ Charity Organization / Educational Institution / Mosque / Madrasha:
a)
Certified true copy of Constitution and By-Laws/Memorandum and Article of Association/Trust Deed.
b)
Certified true copy of the Certificate of Registration/Permission from the concerned Government Department(s).
c)
List of Members of the Governing Body/Executive Committee with their address and phone number.
d)
Extracts of the duly adopted Resolution of the Board/Executive Committee/Governing Body for opening the Account and authorization for its operation duly certified by the Chairman/Secretary/President.
e) f)
Two recent passport size photographs of each Signatory duly attested by the Introducer. Copy of the Passport of each Signatory, if available, National ID Card/Commissioner’s or Chairman’s Certificate or Letter of Introduction by a person acceptable to the Bank.
Compliance:
a) b) c) d)
Property Introduced. All requisite documents as stated in the Documents Check List have been obtained. All documents have been checked and found in order and supportive. Signing Authority of the Signatory/Signatories has been obtained and authenticated.
3.3.2 Computer Services: Shahjalal Islami Bank is computerized and provides the following services some of these services will be introduced soon. Shahjalal Islami Bank Limited introduced a few schemes, which are very popular: Online services a) Automated Accounting
b) c) d) e)
Integrated System Signature Verification Any Branch Banking ATM Services
f) POS Services g) SMS Push Pull Services h) Other Delivery Channel Services (to be implemented) • 3.3.2.1 SJIBL VISA Card: Card is considered as a new dimension of product resulting from technological development in the banking arena. In line with our affiliation with VISA International for VISA ATMs and POS, VISA Cards are already introduced. Features of SJIBL VISA Card:
a) Sense of satisfaction of having an international brand. b) Any where any time banking. c) 24 hours and 7 days a week banking. d) Directly linked with cardholders account. e) Convenient cash withdrawal at ATMs. f) Acceptability at huge number of Q-cash ATMs around Bangladesh. g) Accepted at all VISA terminals locally and globally. h) Local and international transaction with the same card (for duel card). i) Balance Inquiry. j) Mini statement. k) PIN change. l) Shopping at a large number of Q-cash POS terminals around Bangladesh. m) Payment of utility bill. n) Avoid pressure of at counter of bank. o) Minimizing risk of carrying cash Usage Limit of the VISA Card: Description
Transaction Limit (Per Day)
Cash withdrawal limit (total)
4 times
Cash withdrawal limit (amount)
Tk. 30,000 (upto Tk. 50,000 on reques)
Balance checking
4 times
Mini statement printing
2 times
PIN change
2 times
Invalid PIN retry count
3 times
Card usage limit in ATMs (total)
10 times
• 3.3.2.2 GP Bill: Grameen Phone subscribers availing the service to pay their bills, advances, security deposit and other related charges through all branches of Shahjalal Islami Bank Limited.
• 3.3.2.3 SMS Service: The following Facilities can be achieved by the SMS Service: a) b) c) d) e) f) g) h) i) j)
Balance Inquiry Cheque Book Request Cheque Leaf Status FC Rate Information Cheque Stop Payment Instruction Statement Request by Courier/Post Statement request by E-mail Last Three Transaction Statement Help inquiry PIN Change
3.3.3 Cheque Book Issue: Cheque Book is a material to withdraw money from the bank. It is a very convenient way to transact money from one place to another without any accident. If anyone opens an account then she/he will apply for a Cheque Book on requisition slip. After verifying the Recently Bangladesh Bank has given a common format for cheque Book to all bank. This Cheque called MICR cheque. We give order for cheque by our software to head office. And this way head office get order from all branches and placed this order to a particular company and they deliver cheque book to different branch .and this Process takes three days. Then the Cheque Book is delivered to the party after taking the signature on the register book from the party. 3.3.4 Duplicate Cheque Book Issue: When a party looses his/her Chequebook, then he/she applies for duplicate Chequebook. Bank stop payment order for that lost Cheque book series in the respective ledger. Then client needs guarantor’s certificate and guarantor must be an account holder of that branch with sufficient balance. In this case, the party will apply to the branch manager for duplicate Chequebook. The party must give indemnity bondage referring that he/she will liable for any fraud-forgery by the lost Cheque. After the formalities Bank issue of new Chequebook for client.
3.3.5 Return of the Cheque: A Cheque may be returned by the following reason:
a) b) c) d) e) f) g) h) i) j) k)
Account Closed. Insufficient funds. Payment stopped. Refer to drawer. Drawn against uncollected funds. Amount in words and figure differ. Drawer’s signature differs. Alternation requires draw’s full signature. Cheque postdated. Date incomplete/missing. Clearing house stamp missing.
Examined of the Cheque: The Passing official must examine the followings:
a) b) c) d) e) f)
Whether the instrument presented is related to the branch.
g) h)
The instrument bears the signature of the drawer.
i)
The instrument bearing similar number was not been paid earlier.
The instrument is not undated/anti-dated/post-dated. The instrument is not crossed since crossed instruments are not payable over the counter. The amounts is words and figures are written and do not differ. There is no alternation anywhere on the instrument. Incase of order Cheque the proper identification of the payee ensure to the satisfaction of the Bank. The number of the instrument along with preceding series if any, conform to the number/series issued and recorded in the relative account particulars.
3.4 Remittance: Local Remittance Department: Cash remitting from one place to another is risky. So, Banks remit funds on behalf of the customer(s) to save them from any awkward happening through network of their branches. There are three modes of remitting funds.
Pay Order (PO): PO Working Procedure, shows in a Flow Chart: Purchaser has an account with SJIBL and fills up the relevant form with a credit voucher
Purchase the PO in favor of a person or company
If any Account with IBBL
Collecting Bank sends an IBDA
Deposit the PO in his account with SJIBL or another Bank by the beneficiary
If Deposit to another bank
Payee’s account credited with collecting Banker
The collecting Banker presents the PO to paying Banker through clearing house
Payee’s account credited with collecting Banker
Figure: Pay Order Issuing Process Demand Draft: DD is called ‘Banker’s Draft’. It is an instrument, issued by a particularbranch, drawn on another branch of the same bank, instructing to pay a certain sum of money. It is very popular instrument for remitting fund from one corner of a country to another. DD is issued in favor of a customer who maintains an a/c with SJIBL Dhaka Main Branch. It can be issued against Cash or Cheque. If DD amount is more than Tk. 50,000/=, a test code is given on IBCA.
Applicant has an A/C with SJIBL
He fills up the relevant form with a credit voucher for the Bank
DD is handed over the customer where paying Bank is mentioned and payment will be made from another Bank
If DD comes to the Bank on which it is drawn, the Bank honors it
An IBCA along with photocopy of DD is sent to the paying Bank
Figure: DD Working Procedure: Shows In a Flow Chart
Telegraphic Transfer (TT): Sometimes the remitter of the funds requires fund immediately. In that case, the banker is requested to remit the funds telegraphically. Different modes are Telegram, Telephone, Telex, Fax. Telegraphic Transfer is the most rapid and convenient but expensive method. The drawer and the payee should have accounts with SJIBL. TT is issued against cash, cheque, and letter of instruction. Applicant has an account with SJIBL
Applicant fills up the relevant form with a credit voucher (Income A/C) for the Bank
Text of telex is written or the relevant information along with Test code is sent to the payee Bank through fax or telephone.
Another 2 copies of the text is sent through courier to the Payee’s Bank
The reconciliation department reconciles two copies and detects the fraud or forgery if any
Payee’s account credited
One copy from drawer’s Bank and another from Payee’s Bank are sent to the reconciliation department of HO
Before that the Payee’s Bank decodes the test and if test is agreed
Figure: Flow Chart of TT (Out Word) Working Process 3.5 Accounts Section: Accounts department maintains all records of transactions and all types of statement. At the end of transaction hour all concerned section sends vouchers of transactions to this department. Accounts department compares all figures/ amount, contents of transactions with supplementary statement prepared by computer. If any discrepancy arises regarding any transaction then this department reports to the concerned department. Following are the activities of accounts department:
a) To record all transaction in the cash book. b) To prepare daily, weekly, monthly, half-yearly and yearly fund position. c) To prepare all kinds of statements related to Bangladesh Bank, Head office and National Board of Revenue (NBR). d) To prepare monthly salary statement, provident fund statement and administrative expenditure statement.
e) To make charges for different types of duty.
3.6 Risk Management: Shahjalal Islami Bank has 7 years Perspective Plan up to 2010 aiming ac diversification of Investment by Size, Sector, Geographical Area, Economic Purpose and Securities mid development of a balanced Investment portfolio of the Bank. Investment (Lending) is the principal function of a Bank. At the same time, there is an underlying/inherent risk in any investment (credit). Investment comprises a very large portion of a Bank’s total cttvat1cs \s such, due diligence and prudential. As such, due diligence and prudential judgment / decision is a precondition for a sound Investment practice arid therefore, is very important for profitability and success of a Bank. The Bank has established control mechanisms to identify, measure and monitor the exposure to investment 1endinŽ, market and liquidity risks. In this context, to have a brief idea on the quality of assets of the bank a calculation is given here under: Total Assets BDT 28,347 million Total Investments BDT 20, 67 million Classified Investments BDT 128 million Percentage of Investment to total Asset 72T3 % Percentage of Classified to total Investments 0.62% 3.6.1 Investment Risk: The Management of specific investment risk is developed according to individual business units. The investment risk management function ensures that appropriate policies are established and ensures compliance with the related sanction monitoring procedures and controls at the business unit level. Investment exposures are aggregated from individual business units and are monitored on a regular basis. Investment involved risks may be summarized as under: a) Difficulty in choosing core business. b) Failure in business of the customer. c) Encompassing a blend of banking and non-banking service. d) Investment either too liquid or of questionable quality e) Competition from other commercial banks. f) Security Control Risk. Portfolio monitoring is carried out by asset quality background of the customer, soundness and viability of his business and cash flow etc sector of the economy and country cost of long-term financing to march with the return on long-term investment. 3.6.2 Market Risk:
Expert opinion to choosing core business area, finding out new business sector, arranging low cost fund to invest at lower rate, steps to avoid undue and unfair competition with the commercial banks etc. are effective measure to reduce the market risk.
3.6.3 Liquidity Risk: Liquidity risk is more important area to think by the banking company to match with the financing and Investment (Lending) Long term and stable financings is required for long-term investment. Beside, inflow of cash through collection of dues against Investment in time is also essential. Effective monitoring and follow-up is the important tools to ensure the required collection. 3.6.4 Foreign Exchange Risk Management: The financial Institutions’ performance is directly related to Foreign Exchange Market. To ensure effective Foreign Exchange Risk Management, the bank has wide scope in establishing organizational structure and formulating Manual as per Guidelines of Bangladesh Bank. However, the bank has already formulated a comprehensive manual. Bank maintains various nostro accounts in order to conduct operations in different currencies including BDT. 3.6.5 Profit Rate Risk: The bank monitored the overall profit rate movement of the market throughout the year through regular ALCO meeting The Asset liability Committee efficiently monitors the sensitivity of profit rate of its entire portfolio. The committee also monitors the mismatches in its assets and liabilities and reprices them accordingly; thereby the hank was able to maintain a stable Net Profit Margin. 3.6.6 Operational Risk: Operational risk may arise from errors, frauds & forgeries, surprises and improper processes due to lack of effective internal control and compliance mechanism. Management has strengthened the Bank’s control and compliance mechanism by restructuring its Internal Control & Compliance Division. Audit & Inspection Unit of this Division conducts Comprehensive /Surprise/Special Inspection of the Branches and important Divisions of I-lead Office periodically compliance Unit ensures timely compliance of regulatory requirements and Monitoring Unit monitors the operational performance of the Bank. 3.6.7 Asset Liability Risk Management: The Asset Liability Management Committee @-\LCO) that is formed with four members headed by Managing Director conducted 12 meetings in 2008. The key agenda of the meetings were liquidity risk related to the balance sheet, maintaining CRR & SLR, Economic outlook & Market Status and rate of profit changing. For managing properly Balance Sheet risk, the bank has already prepared a Manual of The Asset liability Management according to the guidelines of Bangladesh Bank, 3.6.8 Anti-Money Laundering Risk Management:
As per And-Money laundering Act 2002 Bangladesh Bank issued guidelines that each bank and Financial Institution must develop, administer and maintain an Anti-Money Laundering policy that ensures and monitors compliance with the Act. The Bank ensures its Anti-Money laundering Risk through Central Compliance Unit (CCL) at Head Office level. As per guidelines of Bangladesh Batik, the bank has formulated an Anti-Money Laundering Compliance policy.
4.1 Investment: The special feature of the Investment policy of Shahjalal Islami Bank Limited is to invest on the basis of profit loss sharing system in accordance with the tenets and principles of Islamic Shariah. Earning of profit is not only the motive and objective of the bank’s investment policy rather emphasize is given in attaining social good and in creating employment opportunities. The investment and credit department is very important department of a Bank. The money mobilized from ultimate surplus units are allocated through this department to the ultimate deficit unit (Borrower). The success of this department keeps a great influence over the profit of a bank. Failure of this department may lead the bank to huge losses or even to bankruptcy. That is why; special care should be given to this department. Bank landing is important to the economy. Adequate finance can maintain a stable output. But as liquidity and profitability are conflicting considerations, SJIBL, as a bank, while employing the funds pays due regard to both profitability and liquidity. Investment and credit department receive application from clients in a prescribed application form supplied by the Shahjalal Islami Bank Limited. This application form contains detail about the borrowers such as names address of the borrowers/ directors/partners/proprietors, type and nature of the business, security offered, market of the borrower product, annual sales and production etc. The applicant must duly sign the application form. The branch officer after receiving the application form scrutinize the information provided in the form, collect additional financial information of the proposed firm, detail financial and other relevant information of sister concern, if any. After appraising the investment request and its securities the branch makes an investment proposal with detail information to the head office for approval. The officer in-charge and manager must sign this investment proposal as well. If head office approves the investment proposal, the branch prepares all documentation and make arrangement for investment disbursement Shahjalal Islami Bank Limited offer various types of investments. The objectives and principles of investment operations of the Bank are:
a) b)
To invest fund strictly in accordance with the principles of Islamic Shariah.
c)
To ensure mutual benefit both for the Bank and the investment-client by professional appraisal of investment proposals, judicious sanction of investment, close and constant supervision and monitoring thereof.
d)
To make investment keeping the socio-economic requirement of the country in view.
To diversify its investment portfolio by size of investment, by sectors (public & private), by economic purpose, by securities and by geographical area including industrial, commercial & agricultural.
e)
To increase the number of potential investors by making participatory and productive investment.
f)
To finance various development schemes for poverty alleviation, income and employment generation with a view to accelerating sustainable socio-economic growth and upliftment of the society.
g)
To invest in the form of goods and commodities rather than give out cash money to the investment clients.
h) i)
To encourage social upliftment enterprises.
j)
The Bank extends investments under the principles of Bai-Murabaha, Bai-Muazzal, Hire Purchase under Shirkatul Meelk and Musharaka. The Bank is making sincere efforts to go for investment under Mudaraba principle in near future.
To shun even highly profitable investment in fields forbidden under Islamic Shariah and are harmful for the society.
4.2 Investment Modes of SJIBL: When money is deposited in the SJIBL, the bank, in turn, makes investments in different forms approved by the Islamic Shariah with the intention to earn a profit. Not only a bank, but also an individual or organization can use Islamic modes of investment to earn profits for wealth maximization. Some popular modes of SJIBL Investments are discussed below. 4.2.1. Bai-Murabaha (Contract Sale on Profit): Bai-Murabaha means sale for an agreed upon profit. Bai-Murabaha may be defined as a contract between a buyer and a seller under which the seller sells certain specific goods permissible under Islamic Shariah and the Law of the land to the buyer at a cost plus an agreed upon profit payable today or on some date in the future in lump-sum or by installments. The profit may be either a fixed sum or based on a percentage of the price of the goods. Features of Murabaha: a) A client can make an offer to purchase particular goods from the bank for a specified agreed upon price, including the cost of the goods plus a profit. b) A client can make the promise to purchase from the bank, that is, he is either to satisfy the promise or to indemnify any losses incurred from the breaking the promise without excuse. c) It is permissible to take cash/collateral security to guarantee the implementation of the promise or to indemnify any losses that may result. d) Documentation of the debt resulting from Bai-Murabaha by a Guarantor, or a mortgage, or both like any other debt is permissible. Mortgage/Guarantee/Cash Security may be obtained prior to the signing of the Agreement or at the time of signing the Agreement. e) The bank must deliver the goods to the client at the date, time, and place specified in the contract. f) The bank sells the goods at a price above the cost to obtain a profit. The sale price that is charged by the bank is agreed upon in the Bai-Murabaha. The profit can be stated in terms of a flat dollar amount or on a percentage of the purchase price. If a percentage is used, the
percentage shall never be expressed in terms of time, in order to avoid confusion that the price is a form of interest (Riba), which is not allowed. g) The price agreed to in the agreement is binding on both parties. h) It is permissible for the bank to contract with a third party to buy and receive the goods on its behalf. This agreement must be a separate contract. Steps of Bai-Murabaha: First Step: The client submits a proposal regarding his requirements of the bank. The client sends a proposal with the specifications of the commodity to be acquired from the bank. The proposal also indicates details regarding the date, time and place of delivery as well as price and form of payment information. The bank responds by sending a counter proposal either accepting the buyer’s price or stipulating a different price. Second Step: The client promises to buy the commodity from the bank on a Bai-Murabaha basis, for the stipulated price. The bank accepts the order and establishes the terms and conditions of the transaction.
Third Step: The bank informs the client (ultimate buyer) of its approval of the agreement to purchase. The bank may pay for the goods immediately or in accordance with the agreement.
Fourth Step: The two parties (the bank and the client) sign the Bai-Murabaha Sale contract according to the agreement to purchase. Fifth Step: The Bank authorizes the client or its nominee to receive the commodity. The seller sends the commodity to the place of delivery agreed upon. The client undertakes the receipt of the commodity in its capacity as legal representative and notifies the bank of the execution of the proxy. Rules of Bai-Murabaha:
a) It is permissible for the client to offer to purchase a particular commodity, deciding its specifications and committing itself to buy it on Murabaha for the cost plus the agreed upon profit. b) It is permissible that the mutual agreement shall contain various conditions agreed upon by the two parties, especially with respect to the place of delivery, the payment of a cash security to guarantee the implementation of the operation and the method of payment. c) It is permissible to stipulate the binding nature of the promise to purchase. Thus, the agreement can only be satisfied by either fulfilling the promise to purchase or by indemnifying the bank for any losses incurred if the promise to purchase is not fulfilled. d) It is a condition that the bank purchases the requested commodity (first purchase contract) before selling it on Murabaha to the buyer. The contract in the first purchase must be settled, in principle, between the source seller and the bank.
e) It is permissible for the bank to authorize a second party including the buyer to receive the
f) g) h)
i)
commodity on its behalf. This authorization must be in a separate contract, particularly if the buyer is going to receive the goods on behalf of the bank. This is necessary to avoid any conflicts with the ensuing Murabaha sale. Once the bank takes ownership of the goods, it is responsible for any damages or defects. Thus, if the goods are damaged, the bank is liable and must repair the damage prior to delivering the goods to the purchaser. It is a condition that the Bai-Murabaha contract be drawn at the last phase. That is after the promise to purchase and the purchase of the commodity in the name of the bank and receipt of the commodity directly by the bank or through an agent. The legal rules of Bai-Murabaha must be observed in drawing the contract of the Murabaha sale connected with a promise to purchase. Particularly concerning the issue of the transparency of the cost of the first purchase and the amount of profit because discrepancies lead to disputes, which may invalidate the contract. It is permissible to document the debt resulting from Bai-Murabaha by a guarantor or a mortgage, like any other sale on credit. Further, it is permissible that the mortgage accompanies the contract, because it is possible to take a mortgage on actual debt as well as promised debt before it is realized. However, the mortgage shall only be in effect if the debt is actually incurred.
Application of Bai-Murabaha: Murabaha is the most frequently used form of finance in SJIBL throughout the world. It is suitable for financing the different investment activities of customers with regard to the manufacturing of finished goods, procurement of raw materials, machinery, and other required plant and equipment purchases. It is used widely about 53%. 4.2.2 Bai-Muajjal (Deferred Sale): The Bai-Muajjal may be defined as a contract between a buyer and a seller under which the seller sells certain specific goods, permissible under Shariah and law of the country, to the buyer at an agreed fixed price payable at a certain fixed future date in lump sum or in fixed installments. Features of Bai-Muajjal: a) It is permissible and in most cases, the client will approach the bank with an offer to purchase a specific good through a Bai-Muajjal agreement. b) It is permissible to make the promise binding upon the client to purchase the goods from the bank. c) It is permissible to take cash/collateral security to guarantee the implementation of the promise or to indemnify the bank for damages caused by non-payment. d) It is also permissible to document the debt resulting from Bai-Muajjal by a Guarantor, or a mortgage or both, like any other debt. Mortgage/Guarantee/Cash security may be obtained prior to the signing of the Agreement or at the time of signing the Agreement. e) All goods purchased on behalf of a Bai-Muajjal agreement are the responsibility of the bank until they are delivered to the client. f) The bank must deliver the goods to the client at the time and place specified in the contract.
g) The bank may sell the goods at a higher price than the purchase price to earn profit. h) The price is fixed at the time of the agreement and cannot be altered. i) The bank is not required to disclose the profit made on the transaction.
Some Observations: The following points should receive attention before making any investment decision under BaiMuajjal:
a) Whether the goods that the client intends to purchase are marketable and have steady demand in the market. b) Whether the price of the goods is subject to frequent and violent changes.
c) Whether the goods are perishable in short or in long-term duration. d) Whether the quality and other specifications of the goods as desired by the client can be ensured. e) Whether the goods are available in the market and the bank will be in a position to purchase the Goods in time and at the negotiated price. f) Whether the sale price of the goods is payable by the client at the specified future date in lump sum or in Installments as per the agreement. 4.2.3 Hire-Purchase Under Shirkatul Melk: Shirkatul Melk: Shirkat means partnership. Shirkatul Melk means share in ownership. When two or more persons supply equity, purchase an asset and own the same jointly and share the benefit as per agreement and loss in proportion to their respective equity, the contact is called Shirkatul Melk. In the case of Hire Purchase under Shirkatul Melk, SJIBL purchase assets to be leased out, jointly with client under equity participation, own the same and share benefit jointly till the full ownership is transferred to the client. Definition of Ijara: The term Ijara has been defined as a contract between two parties, the lessor and the lessee, where the lessee enjoys or reaps a specific service or benefit against a specified consideration or rent from the asset owned by the lessor. It is a lease agreement under which a certain asset is leased out by the lessor or to a lessee against specific rent or rental for a fixed period. Sales Contract: This is a contract between a buyer and a seller under which the onwnership of certain goods or asset is transferred by the seller to the buyer against agreed upon price paid by the buyer. In the case of Hire Purchase under Shirkatul Melk, the lessor bank sells or transfers its title to the asset under a sale contract on payment of sale price. Stages of Hire Purchase under Shirkatul Melk Hire Purchase under Shirkatul Melk Agreement has got three stages: a) Purchase of asset under joint ownership of the lessor and the lessee.
b) Hire, and c) Sale and transfer of ownership by the lessor to the other partner - lessee.
Important Features: a) In case of Hire Purchase under Shirkatul Melk transaction the asset/property involved is jointly purchased by the lessor (bank) and the lessee (client) with specified equity participation under a Shirkatul Melk contract in which the amount of equity and share in ownership of the asset of each partner (lessor bank and lessee client) are clearly mentioned. Under this agreement the lessor and the lessee become co-owners of the asset under transaction in proportion to their respective equity. b) In Hire Purchase under Shirkatul Melk Agreement the exact ownership of both the lessor (bank) and lessee (client) must be recognized. However, if the partners wish and agree the asset purchased may be registered in the name of any one of them or in the name of any third party clearly mentioning the same in the Hire Purchase Shirkatul Melk Agreement. c) The share/part of the purchased asset owned by the lessor (bank) is put at the disposal possession of the lessee (clients) keeping the ownership with him for a fixed period under a hire agreement in which the amount of rent per unit of time and the benefit for which rent to be paid along with all other agreed upon stipulations are clearly stated. Under this agreement the lessee (client) becomes the owner of the benefit of the asset not of the asset itself, in accordance with the specific provisions of the contract that entitles the lessor (bank) the rentals. d) As the ownership of leased portion of asset lies with the lessor (bank) and rent is paid by the lessee against the specific benefit, the rent is not considered as price or part of price of the asset. e) In the Hire Purchase under Shirkatul Melk agreement the Lessor (bank) does not sell or the lessee (client) does not purchase the asset but the lessor (bank) promise to sell the asset to the lessee only if the lessee only if the lessee pays the cost price/equity price of the asset as fixed and as per stipulations on which the lessee also gives undertakings. f) The promise to transfer legal title by the lessor and undertakings given by the lessee to purchase the ownership of leased asset upon payment part by part as per stipulations are affected only when it is actually done by a separate sale contract. g) As soon as any part of lesssor's (bank's) ownership of asset is transferred to the lessee (client), that becomes the property of the lessee and hire contract for that share/part and entitlement for rent thereof lapses. h) The hire contract becomes effective from the day on which the lessor transfers the possession of the leased asset in good order and usable condition, so that the lessee may make use of the same as per provisions of the agreement. 4.2.4 Mudaraba (Investment Made by the Entrepreneur): The term Mudaraba refers to a contract between two parties in which one party supplies capital to the other party for the purpose of engaging in a business activity with the understanding that any profits
will be shared in a mutually agreed upon. Losses, on the other hand, are the sole responsibility of the provider of the capital. Mudaraba is also known a Qirad and Muqaradah. Steps of Mudaraba: The bank provides the capital as a capital owner. The Mudarib provides the effort and expertise for the investment of capital in exchange for a share in profit that is agreed upon by both parties.
a) The Results of Mudaraba: The two parties calculate the earnings and divide the profits at the end of Mudaraba. This can be done periodically in accordance with the terms of the agreement, subject to the legal rules that apply. b) Payment of Mudaraba Capital: The bank recovers the Mudaraba capital it contributed before dividing the profits between the two parties because the profit is considered collateral for the capital. c) Distribution of wealth resulting from Mudaraba: In the event a loss occurs, the capital owner (the bank) is responsible for the entire loss. In the event of profits, they are divided between the two parties in accordance with the agreement between them, subject to the capital being recovered first. Rules of Mudaraba: There are some legal rules that govern the business relationship Mudaraba which are as follows. a) It is a condition in Mudaraba that the capital be specific in nature. In other words, the amount of capital must be known at the inception of the contract. The purpose of this rule is to ensure that there is no uncertainty about the amount of capital and, thus, no uncertainty about the division of profits. b) It is a condition that capital must be in the form of currency in circulation. However, merchandise can be contributed, so long as both parties to the business arrangement agree upon its value. c) It is a condition that the capital cannot be subject to indebtedness. d) It is permissible for a Mudarib to mix his private capital with the capital of the Mudaraba, thus becoming a partner. In addition, it is also permissible for the Mudarib to dispose of capital on behalf of the Mudaraba. e) It is a condition that the capital of the Mudaraba is delivered to the Mudarib. f) It is permissible to impose restrictions on the Mudarib as long as the restriction is beneficial and does not hinder the agent’s ability to make a profit. g) It is permissible for the Mudarib to hire an assistant to perform difficult work that he is unable to perform on his own. 4.2.5 Musharaka (Partnership Based Investment): The word Musharaka is derived from the Arabic word Sharikah meaning partnership. At an IBBL, a typical Musharaka transaction may be conducted in the following manner. One, two or more entrepreneurs approach an SJIBL to request the financing required for a project. The bank, along with other partners, provides the necessary capital for the project. All partners,
including the bank, have the right to participate in the project. They can also waive this right. The profits are to be distributed according to an agreed ratio, which need not be the same as the capital proportion. However, losses are shared in exactly the same proportion in which the different partners have provided the finance for the project.
4.2.6 Bai-Salam (Advance Payment): Bai-Salam is a term used to define a sale in which the buyer makes advance payment, but the delivery is delayed until sometime in the future. Usually the seller is an individual or business and the buyer is the bank. The Bai-Salam sales serve the interests of both parties as follows: a) The seller receives advance payment in exchange for the obligation to deliver the commodity at some later date. He benefits from the Salam sale by locking in a price for his commodity, thereby allowing him to cover his financial needs whether they are personal expenses, family expenses or business expenses. b) The purchaser benefits because he receives delivery of the commodity when it is needed to fulfill some other agreement, without incurring storage costs. Second, a Bai-Salam sale is usually less expensive than a cash sale. Finally a Bai-Salam agreement allows the purchase to lock in a price, thus protecting him from price fluctuation. Steps of Bai-Salam: 1. Cash sale or Sale on Credit - The bank pays the agreed upon price at the time of the contracts inception. The seller agrees to the delivery of the commodity some specified date in the future. 2. Delivery and Receipt of the Commodity on the Specific due Date: There are several options for delivery available to the bank a) The bank may receive the commodity and resell it to another party for cash or credit. b) The bank may authorize the seller to find another buyer for the commodity. c) The bank may direct the seller to deliver the commodity directly to a third party with whom the bank has entered into another agreement. 3. The Sale Contract: The bank agrees to sell the commodity for cash or a deferred price, which is higher than the Salam purchase price. The buyer agrees to purchase and to pay the price according to the agreement. Rules of Bai-Salam: 1. It is a condition that the commodity known by both parties to the agreement. 2. It is a condition that the quality of the commodity be monitored closely, as very little variation from specifications in the contract is allowable. 3. It is a condition that the commodity be deliverable on the due date. If there is uncertainty about the ability to deliver the commodity at the due date, a Salam transaction is impermissible.
4. It is permissible to draw a Salam sale contract for a total to be delivered increments on different specified future dates. 5. It is a condition that the commodity is a liability debt. The seller is obliged to deliver the commodity when it is due, according to the specifications stipulated in the contract, whether or not his firm produces the commodity or obtained from other firms. 6. Salam sales are impermissible on existing commodities because damage and deterioration cannot be assured before delivery on the due date. Application of Bai-Salam: Salam sales are frequently used to finance the agricultural industry. Banks advance cash to farmers today for delivery of the crop during the harvest season. Thus banks provide farmers with the capital necessary to finance the cost of producing a crop. Salam sale are also used to finance commercial and industrial activities. Once again the bank advances cash to businesses necessary to finance the cost of production, operations and expenses in exchange for future delivery of the end product. In the meantime, the bank is able to market the product to other customers at lucrative prices. In addition, the Salam sale is used by banks to finance craftsmen and small producers, by supplying them with the capital necessary to finance the inputs to production in exchange for the future delivery of products at some future date. 4.3 Investment Processing of SJIBL: Generally a bank takes certain steps to deliver its proposed investment to the client. But the process takes deep analysis. Because banks invest depositors fund, not banks’ own fund. If the bank fails to meet depositors demand, then it must collapse. So, each bank should take strong concentration on investment proposal. However, SJIBL makes its investment decision through successfully passing the following crucial steps:
4.3.1 Selection of the Client: Here, investment taker (client) approaches to any of the branch of SJIBL. Then, he talks with the manager or respective officer (Investment). Secondly, bank considers five C’s of the client. After successful completion of the discussion between the client and the bank, bank selects the client for its proposed investment. It is to be noted that the client/customer must agree with the bank’s rules & regulations before availing investment. Generally, bank analyses the following five C’s of the client:
1) 2) 3) 4) 5)
Character Capacity Capital Collateral Condition.
4.3.2 Application Stage: At this stage, the bank will collect necessary information about the prospective client. For this reason, bank informs the prospective client to provide and/or fill duly respective information which is crucial for the initiation of investment proposal. Generally, here, all the required documents for taking investment have to prepare by the client himself. Documents that are necessary for getting investment of SJIBL are prescribed below: a) b) c) d) e) f) g) h) i) j) k)
Trade License photocopy (for proprietorship); Abridged pro forma income statement; Attested copy of partnership deed (for partnership business); Prior three (03) years’ audited balance sheet (for joint stock company); Prior three (03) years’ business transactions statement for the musharaka/mudaraba investment; Abridged pro forma income statement for the musharaka/mudaraba investment; Attested copy of the Memorandum of Association (MOA) & Articles of Association (AOA) for the joint stock company; Attested copy of the Tax Identification Number (TIN)- including final assessment; Tenders of the proposed assets (in case of HPSM); Detailed summary of the sundry debtors and creditors (including both time & schedule); Summary of the personal movable & immovable assets; and others.
4.3.3 Appraisal Stage: At this stage, the bank evaluates the client and his/her business. It is the most important stage. Because, on the basis of this stage, bank usually goes for sanctioning the proposed investment limit/proposal. If anything goes wrong here, the bank suddenly stops to make payment of investment. In order to appraise the client, Shahjalal Islami Bank Bangladesh Limited (SJIBL) provides a standard F-167B Form (Appraisal Report) to the client for gathering all the information. The original copy of
the appraisal report is enclosed in the appendix chapter. However, the following contents are presented from that appraisal report: a) b) c) d) e) f) g) h) i) j) k) l) m) n) o) p) q) r) s)
Company’s/Client’s Information. Owner’s Information. List of Partners/Directors. Purpose of Investment/Facilities. Details of Proposed Facilities/Investment. Break up of Present Outstanding. Other Liabilities of the Client/Group. Previous Banker’s Information. Details of Sister/Allied Concerns. Allied Deposit as on. Business/Industry Analysis. Relationship Analysis. Asset-Liability position of the client as per Audited Balance Sheet. Working Capital Assessment. Risk Grade. Particulars of the godown for storing MPI/Murabaha goods. Insurance Coverage. Audit Observation. Security Analysis
4.3.4 Sanctioning Stage: At this stage, the bank officially approves the investment proposal of the respective client. In this case client receives bank’s sanction letter. Shahjalal Islami Bank Bangladesh Limited (SJIBL)’s sanction letter contains the following elements: a) b) c) d) e) f)
Investment Limit in million Mode & amount of investment Purpose of investment Period of investment Rate of return Securities: • Primary: Stock of goods is the primary security. i. LC/Bills: Related Documents. ii. Murabaha Post Investment (MPI)/Bai-Murabaha: Pledge of MPI/BaiMurabaha goods. iii. MPI/Bai-Bai Murabaha-TR: Lien on goods to be released. •
Cash/Goods: i. Bai-Murabaha: 25% cash security on cost price to be subsequently converted to goods security. ii. TR (Trust Receipt): Without cash security.
•
Collateral: Immovable properties.
Cash/Goods Security: In allowing Murabaha investment and amount of cash security is generally realized from the client (amount depends on the nature of goods, creditworthiness of the client, collateral security obtained etc.) which is converted to goods security after purchase of goods purchased out of bank’s investment and client’s cash security is pledged to the bank, kept under bank’s custody before its delivery to the client on payment. Example: If, for a Murabaha investment cash security is fixed at 25% Bank’s investment stands at 75% on the total goods purchased. For example, if cost of total goods purchased is Tk.100000 Bank’s investment will be Tk.75000 and client’s cash security will be Tk.25000. Bank
Client
Total Cost of Goods
Tk. 75000 (75%)
Tk. 25000 (25%)
Tk. 100000 (100%)
4.3.5 Documentation Stage: At this stage, usually the bank analyses whether required documents are in order. In the documentation stage, Islami Bank Bangladesh Limited (IBBL) checks the following documents of the client: a) Tax Payment Certificate. b) Stock Report. c) Trade License (renewal). d) VAT certificate e) Liability statement from different parties. f) Receivable from different clients. g) Other assets statement. h) Aungykar Nama. i) Ghosona Potra. j) Three (03) years net income & business transactions. k) Performance report with the bank. l) Account Statement Form of the bank. m) Valuation Certificate • Particulars of the Proposal. • Particulars of the Mortgagor. • Particulars of the Properties. n) Outstanding liability position of the bank. o) CIB (Credit Information Bureau) Report.
4.3.6 Disbursement Stage: At this stage, bank decides to pay out money. Here, the client gets his/her desired fund or goods. It is to be noted that before disbursement a “site plan” showing the exact location of each mortgage property needs to be physically verified. 4.3.7 Monitoring & Recovery Stage:
At this final stage of investment processing of the Shahjalal Islami Bank Bangladesh Limited (SJIBL), bank will contact with the client continually, for example- bank can obtain monthly stock report from the client in case of micro investment. Here, the bank will keep his eye on over the investment taker. If needed, bank will physically verify the client’s operations. Also if bank feels that anything is going wrong then it tries to recover its investment fund from the client.
5.1 Foreign Exchange: Foreign Exchange means foreign currency and it includes any instrument drawn, accepted, made or issued under clause (13), Article 16 of the Bangladesh Bank Order, 1972. All deposits, credits and balances payable in any foreign currency and draft, travelers cheque, letter of credit and bill of exchange expressed or drawn in Bangladeshi currency but payable in any foreign currencies. Bangladesh Bank issues Authorized Dealer (AD) license by observing the bank’s performance and also the customers associated with the bank for conducting foreign dealings. So, Shahjalal Islami Bank Limited, FEx. Branch is an authorized dealer. Banks play a vital role by minimizing the risk of two parties, namely buyer and seller. In fact without the help of banks we cannot think about a congenial international trade environment. The special feature of the Investment policy of Shahjalal Islami Bank Limited is to invest on the basis of profit loss sharing system in accordance with the tenets and principles of Islamic Shariah. Earning of profit is not only the motive and objective of the bank’s investment policy rather emphasize is given in attaining social good and in creating employment opportunities. Now the question comes how banks help international trade. We know that in a local trade there is a chance to know about each other. But in international trade the involved parties stay two distant places. For a buyer the following risks are involved:
a) Risk of non-delivery of goods. b) Risk of receiving sub standard goods. c) Risk of fraud in goods. For the seller the following risk is involved• Risk of non-payment. The areas of foreign trade are:
a) Import b) Export c) Remittance The achievement of Shahjalal Islami Bank in the area of foreign exchange business has been quite phenomenal. The Bank has been providing services to import and export trade and for repatriation of
hard-earned foreign exchange of Bangladeshis living and working abroad and has, by now, consolidated its position in these areas. 5.2 Import Section: In case of Import, the importers are asked by their exporters to open a letter of credit, so that their payment against goods is ensured. Letter of Credit (L/C): Letter of Credit (L/C) is a payment guarantee to the seller by the buyer’s bank. It is in fact, a Credit Contract whereby the buyer’s bank is committed (on behalf of the buyer) to place an agreed amount of money at the seller’s disposal under some agreed conditions. If the conditions of the credit do not require for presentation of specified documents, it is called Clean Credit. On the contrary, if the presentation of specified documents is obligatory, the credit is called a Documentary Credit. Buyers and sellers enter into contracts for buying and selling goods/ services and the buyer instructs his bank to issue L/C in favor of the seller. Here bank assumes fiduciary function between the buyer and seller. SJIBL Foreign Exchange. Branch deals with two types of L/C. These are a) Sight L/C
b) Deferred L/C. 5.2.1 Forms of Letter of Credit (LC): Revocable L/C: If any letter of credit can be amendment or change of any clause canceled by consent of the exporter and importer is known revocable letter of credit. A revocable letter of credit can be amended or canceled by the issuing bank at any time without prior notice beneficiary. It does not constitute a legally binding undertaking by the bank to make payment. Revocation is possible only until the issuing bank or correspondent has honored the document. Thus a revocable credit does not usually provide adequate security for the beneficiary. Irrevocable L/C: A documentary credit takes many different forms. The first decision i.e. the choice of the basic form of the credit is usually made at the time of negotiation between the seller and the buyer. The terms of the credit will be determined in detail when the buyer instructs his bank to issue the credit. At this stage the seller, on being informed by the bank regarding the credit terms, should ensure whether the credit terms are agreeable and, if necessary, demand from the buyer a more precise wording of the credit terms or the necessary amendments. It is in the interest of both the parties to the contract that the individual terms of the credit transaction are clearly and correctly stipulated. This facilitates the examination of the documents at the time of utilization. The following parties are involved to a letter of credit, namely: Obligatory Parties are: a) Importer/ Buyer/ Applicant b) Opening Bank/ Issuing bank c) Advising Bank/ Notifying Bank d) Exporter/ Seller/ Beneficiary
Optional Parties (In case of need) are a) Negotiating Bank
b) Confirming Bank c) Paying/ Reimbursing bank An importer is required to have the following formalities to import the goods through SJIBL: a) An account with Islami Bank Bangladesh Ltd. FEX. Branch b) Import Registration Certificate (IRC) c) Tax Paying Identification (TIN) Number d) Proforma Invoice/ Indent e) Membership Certificate f) LCA (Letter of Credit Application) form duly attested g) One set of IMP Form h) Insurance Cover note with money receipt i) Others 5.2.2 Retirement of Documents: On receipt of the cost memo/lodgement voucher the importer pays the required amount. This stage is known as 'Retirement of Import Bills'. Bank will prepare the vouchers to reflect the amount of cost and other charges from the importer, adjustments of margin and PAD Account. Thereafter the documents may be handed over to the importer against proper acknowledgement after certification and endorsement.
5.3 Delivery of Shipping Documents: If the bill is to be retired by debit to the importer’s account, the shipping documents are handed over to the importer or his duly authorized clearing and forwarding agent for clearance of the goods from customs at his own account. MPI (Pledge) Facility: In case MPI (Pledge) facility is given, the branch should itself arrange or through debiting the account of client, clearance by bank’s nominated Clearing & Forwarding Agent of the goods on payment of import duty, sales tax etc. and store the goods at the bank’s go down subject to release on production of Delivery order as per arrangement. TR Facility: Sometimes documents are also handed over to the importer against T.R. for clearance of the goods on the clear undertaking that the importer will hold the goods or the sale proceeds thereof in trust with him at the disposal of the bank till the entire facility is liquidated. Coordination between Investment and LC Departments: As per our existing system, imports bills are held under the custody of branches LC Department but bank finance for opening of LCs is handled by Investment Administration Department. After completing of TR/MPI facilities, documents are delivered to the importers by LC Department. In order to make a full proof system for controlling of import documents, branches
should observe the following procedures while releasing import documents retired against T.R. or MPI facilities.
a) Investment Department under authorized signatures must issue a memo advising the LC b)
c) d)
e)
Deptt. To release the documents after full adjustment of bank dues and/or TR/MPI facilities, as per prescribed formats. The Investment Department must ensure that the necessary vouchers have been passed relating to the release of Import Bills against full payment/TR/MPI facilities under authorized signatures. The accounting entries are to be passed and relative tickets prepared as per instructions given in annexure 1 The L/C Department must ensure that necessary approval has been obtained while releasing the import documents against TR or MPI facilities. L/C Department will forward the documents to Bank’s approved C&F agent, as per standing instructions, with necessary instructions regarding payment of duty and other taxes and the mode of transportation from the port. A copy of he forwarding letter should be endorsed to Investment Department for their record and follow up. Cases where goods are to be cleared locally, documents should be delivered to local approved C&F agents with written permission of branch manager. The accounting entries are to be passed and relative tickets prepared as per instructions given in annexure 1
Payment of Import Duty Sales Tax etc: If the bank, on behalf of the importer, clears the goods, the MPI Account is further debited with the amount of import duty, sales tax etc. and other clearing charges including go down rent etc. Delivery of the goods is made in one or more installments through Delivery Orders issued by the branch against cash payment by the importer. IMP Procedure: All payments for imports into Bangladesh are required to be reported to Bangladesh Bank on IMP form. The importer submits the IMP form in duplicate duly filled in and signed by him or by his authorized agent. Remittance by the Branch: If the shipping documents concerning the import are received by the branch directly from the foreign correspondent under irrevocable LC, the branch can approve the remittances if otherwise found in order and fully documented and covered by a valid LCA form. Otherwise prior approval of Bangladesh Bank is to be obtained on IMP form on arrival of the goods into Bangladesh, before effecting remittance to the foreign supplier. In case of import by post, the branches may make remittance against the import without prior approval of Bangladesh only if the post parcels are addressed directly to the branch. In other case prior approval on form IMP is required before effecting remittances. The relative original copy of IMP form is required to be certified by the branch accordingly in the space provided for the purpose along with a copy of Invoice duly certifying the amount remitted and submitted to Bangladesh Bank with usual Monthly Return (Summary statement S-1, S-2 etc. as the case may be) supported by E-2 schedule. The other copies are to be retained by the branch for disposal in future according to Exchange Control Regulations. Disposal of IMP Forms: The branch will obtain invoices in duplicate and certify these as usual. After recording in the IMP form the particulars of the remittance the original copy of the IMP
form along with a copy of the certified invoice should be forwarded to the Bangladesh Bank with usual monthly returns. The branch should retain the duplicate copy of IMP form. Subsequently, when the importer submits the exchange control copy of the Bill of Entry/Custom’s Certified Invoice, its particulars should be matched and checked with those in the IMP form and invoice to see that the merchandise for which remittance was made had been duly received in Bangladesh. Bill of Entry for Consumption: Subsequently, when the importer submits the exchange control copy of the Bill of Entry/Custom’s Certified Invoice, its particulars should be matched and checked with those in the IMP form and invoice to see that the merchandise for which remittance was made had been duly received in Bangladesh. Other copies of the IMP forms are to be filed in the relative file for the importer along with other import documents. In case of imports on Govt. Account the IMP form is marked with bold letter “G”. Returns & Reports: On the last working day of the month, the returns of bills lodged during the month should be sent to Bangladesh Bank along with original copy of the IMP form. The second copy should be filed with the Bill of Entry after clearance of goods. The branch will also retain the third copy. The 4th copy should be sent to Bangladesh Bank on failure of the importer to submit the Bill of Entry within time. 5.4 Parties of an Letter of Credit: • Applicant for the Credit The importer or buyer on whose request and on whose behalf the letter of credit is opened is called the applicant. • Issuing Bank/Opening Bank The bank that opens a letter of credit, at the request of the importer, is known as Issuing Bank. The issuing bank is the buyer's bank and is also called opening bank. • Beneficiary The party, normally the supplier of the goods, in whose favor letter of credit is opened, is called beneficiary. The seller, after shipping the goods as per terms of the credit, presents the documents to negotiating bank/confirming bank for negotiation. • Advising Bank The bank in the exporter's country, usually the foreign correspondent of the importer's bank, through which letter of credit is advised to the supplier is called the 'advising bank'. • Confirming Bank If the advising bank also adds its own undertaking to honor the credit while advising the same to the beneficiary, he becomes the confirming bank. The confirming bank, in addition, becomes liable to pay for documents in conformity with the LC terms and conditions. •
Negotiating Bank
The bank, which negotiates the bill (draft) of the exporter drawn under the credit, is known as negotiating bank. If the advising bank is also authorized to negotiate the bill (draft) drawn by the exporter it itself becomes the negotiating bank. 5.5 Contents of the Letter of Credit: In general L/C contains the following information.
a) Name of the buyer: Who is also known as the accounted since it is for his account that the credit has been opened? b) Name of the seller: who is also known as the beneficiary of the credit?
c) Moment of the credit: This should be the value of the merchandise plus any shipping charge intent to be paid under the credit. d) Trade terms: Such as FOB and CIF
e) Tenor of the draft: This is normally dependent upon the requirements of the buyer. f) Expiration Date: which is specified last date when documents be presented. 5.6 Letter of Credit on Deferred Payment Basis: Subject to compliance with other conditions laid down in this chapter and the current IPO, import LCs may be opened on deferred payment (DA) basis in the follows cases:
a) Capital machinery up to 360 days usance basis; b) Industrial raw materials for own use of industrial importers (including back-to-back imports discussed later in the section) on up to 180 days usance basis. c) Import of coastal vessels including oil tankers and ocean-going vessels including those procured for scrapping on up to 360 days usance basis; d) Import of agricultural implements and chemical fertilizer on up to 180 days basis;
e) Import of life saving drugs on up to 90 days usance basis; For import on deferred payment basis, the price must be internationally competitive and usance interest, if any, should not be higher than the LIBOR for the corresponding period or the rate prevailing in the currency of the country of the supplier. Instructions regarding opening of import LCs on longer usance terms against supplier’s credits arranged by industrial enterprise in the private sector as per general or specific BOI approval are contained in chapter 23 of the ‘Guidelines for Foreign Trade Transactions’ of Bangladesh Bank 5.7 Export Section: Foreign Exchange Regulation Act, 1947 nobody can export by post and otherwise than by post any goods either directly or indirectly to any place outside Bangladesh, unless a declaration is furnished by the exporter to the collector of customs or to such other person as the Bangladesh Bank (BB) may specify in this behalf that foreign exchange representing the full export value of the goods has been or will be disposed of in a manner and within a period specified by BB.
Back-to-back L/C: It is a secondary L/C (New Import L/C) opened by the seller’s bank based on the original L/C (Master L/C) to purchase the raw materials and accessories for manufacturing of the export product (s) required by the seller. Under the ‘Back to Back’ concept, the seller as the Beneficiary of the master L/C offer it as a ‘security’ to the advising Bank for the issuance of the second L/C. The beneficiary of the Back-to-Back L/C may be located inside or outside the original beneficiary’s country. In case of a Back-to-Back L/C, the bank takes no cash security (margin). Bank liens the Master L/C and the drawn bill are a Usance/ Time bill.
Buyer, USA instructs his bank to issue an Import L/C in favor of Lenny Fashions Ltd, Bangladesh.
USA bank issues a L/C and forwards the same to Lenny Fashions Ltd. through a B’deshi Bank (e.g. SJIBL FEx. Branch.)
SJIBL issues a Back to Back L/C and forwards the same to 'Y' Textile Ltd. through another Exporter Bank.
Lenny Fashions Ltd. submits his Export L/C with a request to SJIBL FEx. Br. to create lien against L/C and issue Back to Back L/C in favor of 'X' Textile Ltd.
Figure: Back-to-Back L/C Procedure SJIBL FEx.Branch, following papers/ documents is required for opening a back-to-back L/C: a) Master L/C b) Valid Import Registration Certificate (IRC) and Export Registration Certificate (ERC) c) L/C Application and LCAF duly filled in and signed d) Proforma Invoice or Indent e) Insurance Cover Note with money receipt f) IMP Form duly signed Export L/C: The other type of L/C facility offered by this branch is Export L/C. Bangladesh exports a large quantity of goods and services to foreign households. Readymade textile garments (both knitted and wove), jute, jute-made products, frozen shrimps, tea are the main goods that Bangladeshi exporters exports to foreign countries. Garments Sector is the largest sector that exports the lion share of the country’s export. Bangladesh exports most of its readymade garments products to USA and European Community (EC) countries. Bangladesh exports about 40 % of its readymade garments products to USA. Most of the exporters who export through this branch are readymade garment exporters. They open L/Cs in this branch to export their goods, which they open against the import L/Cs opened by their foreign importers. The export trade of the country is regulated by the Imports & Exports (Control) Act, 1950. There are a number of formalities that an exporter has to fulfill before and after shipment of goods. These formalities or procedures are enumerated as follows : •
Export Registration Certificate (ERC): The exports from Bangladesh are subject to export trade control exercised by the Ministry of Commerce through Chief Controller of Imports & Exports (CCI&E). No exporter is allowed to export any commodity permissible for export from Bangladesh unless he is registered with CCI&E and holds valid ERC. The ERC is
•
required to be renewed every year. The ERC number is to be incorporated on EXP (Export) Forms and others documents connected with exports. The EX Form: After having the registration, the exporter applies to SJIBL, FEx. Branch with the Trade License, ERC and the Certificate from the concerned Government Organization to get the EXP Form. If the branch is satisfied, an EXP Form is issued to the exporter. An EXP Form usually contains the following particulars: • Name and address of the Authorized Dealer; • Particulars of the commodity to be exported with particulars and code no; • Country of destination; • Port of destination; • Quantity; • L/C value in foreign currency; • Terms of sale; • Name and address of Importer/ Consignee; • Bill of Lading/Railway Receipt/Airway Bill/Truck Receipt/Post Parcel Receipt no. and date; • Port of Shipment/Post Office of Dispatch; • Land Custom Post; • Shipment Date; • Name of the Exporter with address; • CCI&E’s registration number and date; • Sector (public or private) under which the exporter fails.
o Securing The Order: Upon registration, the exporter may proceed to secure the export order. This can be done by contracting the buyers directly through correspondence.
o Signing Of The Contract : While making a contract, the following points are to be mentioned: a) Description of the goods; b) Quantity of the commodity; c) Price of the commodity; d) Shipment; e) Insurance and marks; f) Inspection, and g) Arbitration. o Procuring The Materials: After making the deal and on having the L/C opened in his favor, the next step for the exporter is set about the task of procuring or manufacturing the contracted merchandise. o Registration of Sale: This is needed when the proposed items to be exported are raw jute and jute-made goods. o Shipment of Goods : The following documents are normally involved at the stage of shipment: (a) EXP From, (b) Photocopy of registration certificate, (c) Photocopy of contract, (d) Photocopy of the L/C, (e) Customs copy of ERF Form for shipment of jute-made goods and EPC Form for raw jute, (f) Freight certificate from the bank in case of payment of the freight if the port of lading is involved, (g) Railway receipt, berg receipt or truck receipt. 5.7.1 Payment Terms:
The terms of payment i.e. when and how payments are to be received by the exporters are incorporated in the sales contract as per mutual agreement between the buyer and the seller. These are normally the following:
a) b) c) d) e) f) g) h)
Advance Payment CAD (Cash against Document) Consignment Sales Trust Receipt Documents against acceptance (D.A. Bill) Documentary against Payment (D/P Documentary Usance Bill Letter of Credit
5.7.2 Receiving the LC and Advising It to the Beneficiary: On receipt of the LC the steps to be taken are the following: The branch should enter full particulars of the LC in the LC Advising Register allotting separate serial number for each LC. Serial number of the Register should be recorded on the left hand top corner of the printed LC advising form or on the original LC itself as the case may be In case of cable LC, on receipt of mail confirmation update the record by noting the particulars in the LC Advising Register Particulars of all amendments (if any) are also to be recorded in the same register before advising the same to the beneficiary If the credit is an Air Mail LC “Hand-on-credit”, addressed to the beneficiary, dispatch the same in original to the beneficiary under cover of the Bank’s forwarding letter either by registered mail or through messenger, as may be convenient, retaining a photo copy for the bank’s record. The Head Office, before approving the confirmation of the LC, will ensure that the issuing bank is our correspondent and LC confirmation limit has already been sanctioned for this correspondent after proper verification of the credit standing Branches should neither forward any case to Head Office for approval for adding confirmation to LCs issued by a bank which is not our correspondent or in respect of revocable LC; nor should they add any confirmation to an LC without prior approval of the competent authority in the bank. Any amendment to an LC received from Issuing Bank should be advised to the beneficiary promptly. Only request of Issuing bank for any amendment should be accepted. 5.7.3 Realization of Advising/Confirmation Charges: Branch should recover LC advising commission from the beneficiary. If the beneficiary is the bank’s client the charge is debited to his account and if the beneficiary is not our client, the charge will be cash. Charges should be recovered either from the beneficiary or the opening bank depending on the terms of the LC. Amendments of LC: Amendments of LC may be initiated either by the beneficiary or the foreign buyer through LC issuing bank. On receipt of a request for effecting amendment of LC, the branch should proceed as follows:
a) Time stamp the letter/cable/telex requesting amendment of the LC. b) Take out the work card and LC folder. c) Verify the signature on amending letter/test number on tested amending telex/cable with Test Key. d) Review the LC amending letter/cable/telex for their clarity, completeness and conformity with the existing rules and regulation/sale contract, etc. e) Record all particulars of amendment in the LC Advising Register and all other documents/papers connected with the LC. f) Obtain Head Office approval in case of amendment of confirmed LC involving amount or expiry date. g) Prepare LC amendment form and promptly advise the beneficiary and issuing bank. h) Check and obtain official approval signature before dispatching amendment advice. 5.7.4 Certification by the Branch: After negotiation of the bill or acceptance of the documents for collection, the branch should complete the certificates in the space provided on the duplicate copies of the EXP Form to the effect that they have negotiated bills/received-shipping documents for collection for the value stated on the form. When payment is received the branch shall certify on the reverse of the Triplicate copy of the form retained with them and forward it to the Bangladesh Bank with the usual return. The quadruplicate copy will be retained by the branch for record. 5.7.5 Payments to Exporter: Negotiation/ Purchase of Documents: On negotiation purchase of the export bill, the exporter may be paid the value of the bill after converting the bill amount into Bangladesh Taka at the ruling bill buying rates--OD Sight Export buying rate for sight bill and long bill buying rate for usance bill. Other approved charges of the bank may also be adjusted against the bill amount. If forward cover had been booked with the branch, the conversion should be made at the booked rate of exchange. 5.7.6 Advance against Export Bill: When shipment is not covered by an LC or the documents are found discrepant even though shipment is made against LC, the export bill is sent to the correspondents for collection. In that case, the bank may give advance to a trust worthy exporter against the security of the export bills ranging upto 90% of the value of the bill, depending upon the merit of each case. In such cases, bank may also insist on collateral securities, like guarantee from third party or equitable/legal mortgage of property. As any LC does not cover the shipment, the Bank should obtain clear instructions from the drawer (exporter) of the bill particularly on the following points:
a) b) c)
DA/DP/Sight Bills Noting/Protesting Advising fate of the bill
d) e) f) g)
Realization of Collection charges, interest etc Case in need Clearance, storage, insurance etc. at destination Mode of Presentation of the bill
5.8 Foreign Remittance: On March 24, 1994 Bangladesh Taka was declared convertible for current account international transaction. As a result remittance became more liberalized. SJIBL is very happy to announce to have joined hands with western union system and kushiara and introduce swift service to serve expertise to send money back home quickly from anywhere in the world. 5.8.1 Kushiara: Kushiara Money Transfer’s a definition of safety and reliability and a popular Money Transfer Company in United Kingdom (U.K.). Kushiara offers “Instant Cash” next day collection from Bank counter at most cities in Bangladesh and “Quick Credit” to beneficiary’s account in all over the Bangladesh. Payment may be made by bank deposit (Kushiaras account at Barclys Bank) or cheque or bank draft. Please do not send cash through post. We shall process the remittance request and post the customer copy of the remittance form to customers given address after the fund are cleared. The usual times for clearing of cheques require 3-5 working days. The Remittance Form can be downloaded from the website: www.kushiara.net. 1. Contact with us, ask for exchange rate and know how much you need to pay. Deposit the money to Barclays Bank-Kushiara Finacial Services Ltd, A/C No: 20651079 Sort Code: 202178. 2. Post your Remittance Form along with bank receipt or cheque or draft ot Kushiara Financial Serviece Ltd. 313-317 Commercial Road, London E1 2PS. (for prompt processing initially you may send Remittance Form & Payment Slip to Fax No: 02077903063 ID Requirements: Please note that the Government anti money laundering regulations requires us to obtain proof of name & address of remitter in case of transaction over equivalent Euro1000. Further information regarding ID please contact with us. The following type of ID we require: • •
Certificate copy of Passport or certified copy of Full UK or another EU Driving License Certificate copy of Bank or Building Society Statement or Utility bill (gas, water, electricity) within three month.
3. All transaction are authorized under the money laundering regulation. Kushiara has all necessary licenses to carry out the financial service business it offers. 5.8.2 Western Union: “Western Union a fast, reliable and convenient way to send a money transfer”
Western Union Financial Services Inc. U.S.A. is the number one and reliable money transfer company in the world. This modern Electronic Technology based money transfer company has earned worldwide reputation in transferring money from one country to another country within the shortest possible time. Shahjalal Islami Bank Limited has set up a Representation Agreement with Western Union Financial Services Inc. U.S.A. Millions of people have confidence on Western Union for sending money to their friends and family. Through Western Union Money Transfer Service, Bangladeshi Wage Earners can send money quickly from over 280,000 Western Union Agent Locations in over 200 countries and territories world wide- the world’s largest network of its kind, only by visiting any branches of Shahjalal Islami Bank Limited in Bangladesh. The money sent by your loved ones is very special to you indeed. So, at Western Union, we offer the following benefits:
Reliability: Our customers have benefited from our electronic money transfer for over 150 years. Each transfer can be tracked electronically to make sure that you receive the money your loved one has sent. Speed: When your loved one sends you money, within minutes you can receive it in Bangladesh Convenience: Bank account is not required! Just go to a Shahjalal Islami Bank Limited branch anywhere in Bangladesh offering Western Union Money Transfer. Then simply fill a form and collect your money. Shahjalal Islami Bank Limited has 26 such branches all over Bangladesh and Western Union has over 280,000 agent locations across 200 countries and territories. Three easy steps to receive your money:
a) Ones deposit the money at any Western Union Agent location and get a receipt with MTCN. b) He/she then informs to persons for the amount sent (sender name, amount, sending country, receiver name and MTCN). c) Just go to the nearest Shahjalal Islami Bank Branch with a valid identity card. Fill a simple form and receive the money.
6.1 SWOT Analysis of SJIBL: SWOT stands for Strength, Weakness, Opportunity, and Threat. The SWOT Analysis of SJIBL is given below: 6.1.1 Strengths of SJIBL: a) Develop Management System: SJIBL has better management system which is always responsible for better service. b) More found for Investment: For adequate financial ability they can provide loan to the more investment clients.
c) Straightforward and Reliable Employees: all of the employees of SJIBL are sincere reliable. They are always devoted themselves to the works for better customer service. d) Shahjalal Islami Bank Limited has already achieved a goodwill among the clients that’s helps it to retain valuable clients. 6.1.2 Weaknesses of SJIBL: a) SJIBL has lack of ATM booth. b) Credit proposal evaluation process lengthy. c) No substantive use of annual confidential report to reward or to punish employee. Hence employee becomes in efficient. d) Server problem 6.1.3 Opportunities of SJIBL: a) b) c) d) e) f)
Regulatory environment favoring private sector development Wide banking network Credit card business The bank can provide better customer service. They can offer micro credit business for small business. Many branches can be opened to reach the bank’s services in remote location.
6.1.4 Threats of SJIBL: a) b) c) d)
The common attitude of Bangladeshi clients to default. Increased competition in the market for public deposit. Market pressure for lowering the interest rate. Bangladesh bank sometimes requires private commercial banks to be abide by such rules and regulation which is not suitable every commercial bank.
6.2 Findings: a) Lack of strong monitoring unit. b) Sometimes the process of information transferring to the management is lengthy. c) “Banks deal with documents is not goods” is one of the core principles of conventional banking. However Islamic banking needs to with goods are imposed by Shariah. d) Bank has limited ATM booths. e) Lake of central AC for better working environment. f) Generally investment clients do not come to the Islamic Banks only for Shariah purpose rather for low transaction cost. g) Lake of training facility of junior officers. h) Fewer clients for trade business. i) PC Bank server problem. 6.3 Recommendations: a) Proper and sufficient training is required for each and every staff to work with full capability in the best way.
b) Proper monitoring is the pre-consideration for good collection. So monitoring unit is required to be efficient enough to collect more deposit. c) Staffs of branches require being sincere enough in their jobs. This will help in banking procedure. d) The brochures of the products and services of the branch can be mailed through the welcome letters along with the status of the customers via courier. e) Interpersonal relationship needs to be built among the employees and superiors. f) Customer must be convinced to use token system, which will help the personnel of the customer service work smoothly. g) Complain of the customers should be decreased on zero level. h) Assurance the accuracy of on line banking. i) Increase the SJIBL’s own ATM booth. j) SJIBL requires resorting to massive image re-engineering in order to capture the public perception to take the lead role in this sector. k) SJIBL’s investment processing should become easier than other conventional banks. l) SJIBL should make its investment schemes more attractive for availing high-return projects. m) SJIBL should consider utilization of rural potentials from both efficiency and equity grounds in the context of the present-day socio-economic conditions of Bangladesh. Strong commitments and stepping up through experiment and implementation of innovative ideas are the appropriate ways to do that. n) SJIBL should deserve immediate attention in the promotion of the image of Shariah based banks as PLS (Profit-loss-sharing)-banks. 6.4 Conclusion: Shahjalal Islami Bank Limited is one of the most renowned banks in the country. SJIBL has introduced a new dimension in the field of innovative and benevolent banking in our country. The bank has successfully made a positive contribution to the economy of Bangladesh with in very short period of time. Its profit is gradually increasing. Therefore, Shahjalal Islami Bank Limited (SJIBL) is trying to establish the maximum welfare of the society by maintaining the principles of Islamic Shariah which is based on “Quran” and “Sunnah”. Profit earning is not the only motive and objective of the bank’s overall policy rather emphasis is given in attaining social good and in creation employment opportunities. Shahjalal Islami Bank Limited (SJIBL) has been established with a view to conduct interest free banking to establish participatory banking instead of debtor-creditor relationship and finally to establish welfare oriented banking through its overall banking operations that would lead to a just society. Hope SJIBL does more work for socio-economic development besides their banking business. To keep pace with ever-changing uncertain domestic business environment and face the challenges of revised global economic scenario, the bank should be more pro-active and responsive to introduce new marketing strategy to hold the strong position in home and abroad. For the future planning and the successful operation in its prime goal in this current competitive environment I hope this report can provide a good guideline. I wish continuous success and healthy business portfolio of Shahjalal Islami Bank Limited (SJIBL).
Bibliography:
a) b) c) d) e) f) g) h)
Shahjalal Islami Bank Annual Report 2008 Shahjalal Islami Bank Annual Report 2007 Statement of Affairs, Shahjalal Islami Bank Limited (Foreign Exchange Branch) Banking Manuals of Shahjalal Islami Bank Limited Articles of Shahjalal Islami Bank Foundation Bank Bulletin The Bank’s Official Website: www.shahjalalbank.com.bd
Various Daily Newspapers and Magazines. List of Terms used in the Report: SJIBL IBCA IBDA HO L/C LCA IMP EXP TIN SWIEFT B/E B/L FCC TR FDD DD OD FDR P/O TT
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Shahjalal Islami Bank Limited Inter Branch Credit Advice Inter Branch Debit Advice Head Office Letter of Credit Letter of Credit Authorization Import Export Tax Identification Number Society for Worldwide Inter-bank Financial Telecommunication Bill of Exchange Bill of Lading Foreign Currency Clearing Trust Receipt Foreign Demand Draft Demand Draft Over Draft Fixed Deposit Rate Pay Order Telegraphic Transfer