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“A case Study of Export Import Bank of Bangladesh Ltd.”

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Chapter 1 Introduction 1.1 Statement of the Problem Islamic Banking System is not a new phenomenon in our country. Islami Bank Bangladesh Ltd. has been performing their activities in Bangladesh since 1983. Apart from Islami Bank Ltd. other private commercial banks also started Islamic banking system along with their conventional system. Some banks also involved in full operations complying Islamic Shariah, and Export Import Bank Ltd. is one of the leading Islami Bank in Bangladesh. This paper will mainly focus on Investment Banking System under Islamic Shariah Principles. The case study of Exim Bank Ltd. will simply reflect the applications of different modes of Islamic Investments Systems that are being practiced in parallel with conventional business events. It is a real challenge for implementing Islamic concept in traditional Banking System. In an business environment like Bangladesh, it is much more complicated to performs Islamic Banking over coming all those drawbacks present in Socio-Economic culture. As such this case study will try to figure out the actual picture of Investment Banking under Islamic Shariah Principles. The topic of the project report is “Investment Banking Under Islamic Shariah Principles- A case Study of Export Import Bank of Bangladesh Ltd.” 1.3 Objective of the Study The objective of the study is to gain the practical experience of Islamic Investment System and to observe how the conventional business operations can practically comply with Islamic Shariah Principles. In broadly, it was also the objective of the study to gain practical knowledge about the applications of different business concepts studied in the academic classes. In nut-shell this study intend to meet the followings objectives— • • • • 1.4

To know about the System of Investment banking under Islamic Shariah Principles. To compare Islamic Investment and conventional Investment System. To analyze the practical application of rules under Islamic Shariah in investment banking & the causes of default or stuck up investments. To make a study of the facts in order to arrive a certain conclusion about overall Islamic Investment Banking operation. Limitation of the Study

Although maximum effort was given to make the study a successful one, but it suffers from some limitations those are apparently unavoidable. The major ones are; •

Without direct involvement with Investments activities, It was not always possible to realize the facts and features of whole investment procedure under Shariah, as in some cases it was required to ensure actual buy and sale of goods according to Shariah.


• • •

Three months is not enough time to understand the whole banking activities thoroughly and find out the customer’s views with the Islamic Banking System. While discussion with them some were seems to be confused about Islamic Investment System. It was not possible for me to arrange direct discussion or interview with any member of Shariah board of Exim Bank which would help me to reflect the present and future investment policies of the Bank and to clear some confusion about Shariah Principals. Data could not be collected extensively for some featured islamic investment modes as they were not operated by the Bank.

Chapter 2 Methodology 2.1 Variables Covered Islamic banking system is not common phenomenon in the money market of Bangladesh. In order to go deep into this particular area of study and also to realize the objectives of my study, the methodological approach used in this study is of a qualitative nature. Qualitative research method is used here to describe Islamic modes of investment. Qualitative research is an umbrella concept covering several forms of inquiry that help us understand and explain the meaning of social phenomena with as little disruption of the natural setting as possible. The main objective of using case study method is to find how an Islamic bank functions among other established conventional banks in the country. Hence, to realize the said objectives, apart from depth interview, participants observation is also used in the study. Practical case study is analyzed to perform the task. So the report paper is based on practical experiences that were observed during the internship period. 2.2 Methods of collecting Data Collection of data and other informative guideline was collected from the different manuals and guidelines and websites of Exim Bank. The report reflects the true observation in different modes of Islamic investments that are practiced in our country and also in Export Import Bank Of Bangladesh Limited. Data have been collected from both primary and secondary sources. Primary sources: • • •

Discussion with bank officers. Personal observation. Desk work in respective sections/departments.

Secondary sources: • • • • •

Annual report of the bank. Consultation of related book and publications. Different papers of Exim bank Ltd Web Site of Exim Bank Ltd. Other Websites relating Islamic Banking.

2.3 Analytical Tools Used To understand Investment banking under Islamic shariah principals, a case study method is used in the lessons about which we may argue that a case is an empirical inquiry that investigate a contemporary phenomenon within its real-life content, especially when boundaries between phenomenon and content are not clearly evident. Further to the above, in interpretation a qualitative research following analytical tools were used


• • • • •

Naturalistic inquiry Interpretative research Field study Participant observation Inductive study.

2.4 Software used. In preparing the report Office XP is mainly used. In banking operations PC Bank software is used. Among others the following computer software was used to make the report more attractive and understandable 1. 2. 3.

MS Word, MS Excel (for preparing the report, data processing and preparing comparative diagram) Internet Explorer. Opera. (to browse and download information from internet)

Chapter 3 Introduction of Islamic Banking 3.1 Historical Background of Islamic Banking System The first modern experiment with Islamic banking was undertaken in Egypt under cover, without projecting an Islamic image, for fear of being seen as a manifestation of Islamic fundamentalism which was anathema to the political regime. The pioneering effort, led by Ahmad El Najjar, took the form of a savings bank based on profit-sharing in the Egyptian town of Mit Ghamr in 1963. This experiment lasted until 1967 (Ready 198l), by which time there were nine such banks in the country. These banks, which neither charged nor paid interest, invested mostly by engaging in trade and industry, directly or in partnership with others, and shared the profits with their depositors (Siddiqi 1988). Thus, they functioned essentially as saving investment institutions rather than as commercial banks. The Nasir Social Bank, established in Egypt in 197l, was declared an interest-free commercial bank, although its charter made no reference to Islam or Shariah (Islamic law). The IDB was established in 1974 by the Organization of Islamic Countries (OIC), but it was primarily an intergovernmental bank aimed at providing funds for development projects in member countries. The IDB provides fee based financial services and profit-sharing financial assistance to member countries. The IDB operations are free of interest and are explicitly based on Shariah principles. In the seventies, changes took place in the political climate of many Muslim countries so that there was no longer any strong need to establish Islamic financial institutions under cover. A number of Islamic banks, both in letter and spirit, came into existence in the Middle East, e.g., the Dubai Islamic Bank (1975), the Faisal Islamic Bank of Sudan (1977), the Faisal Islamic Bank of Egypt (1977), and the Bahrain Islamic Bank (1979), to mention a few. The Asia-Pacific region was not oblivious to the winds of change. The Philippine Amanah Bank (PAB) was established in 1973 by Presidential Decree as a specialized banking institution without reference to its Islamic character in the bank's charter. The establishment of the PAB was a response by the Philippines Government to the Muslim rebellion in the south, designed to serve the special banking needs of the Muslim community. However, the primary task of the PAB was to assist rehabilitation and reconstruction in Mindanao, Sulu and Palawan in the south (Mastura 1988). The PAB has eight branches located in the major cities of the southern Muslim provinces, including one in Makati (Metro Manila), in addition to the head office located at Zamboanga City in Mindanao. The PAB, however, is


not strictly an Islamic bank, since interest-based operations continue to coexist with the Islamic modes of financing. It is indeed fascinating to observe that the PAB operates two 'windows' for deposit transactions, i.e., conventional and Islamic. Nevertheless, efforts are underway to convert the PAB into a full-fledged Islamic bank (Mastura 1988). Islamic banking made its debut in Malaysia in 1983, but not without antecedents. The first Islamic financial institution in Malaysia was the Muslim Pilgrims Savings Corporation set up in 1963 to help people save for performing hajj (pilgrimage to Mecca and Medina). In 1969, this body evolved into the Pilgrims Management and Fund Board or the Tabung Haji as it is now popularly known. The Tabung Haji has been acting as a finance company that invests the savings of would-be pilgrims in accordance with Shariah, but its role is rather limited, as it is a non-bank financial institution. The success of the Tabung Haji, however, provided the main impetus for establishing Bank Islam Malaysia Berhad (BIMB) which represents a full fledged Islamic commercial bank in Malaysia. The Tabung Haji also con tribute l2.5 per cent of BIMB's initial capital of M$80 million. BIMB has a complement of fourteen branches in several parts of the country. Plans are afoot to open six new branches a year so that by 1990 the branch network of BIMB will total thirty-three (Man 1988). Reference should also be made to some Islamic financial institutions established in countries where Muslims are a minority. There was a proliferation of interest-free savings and loan societies in India during the seventies (Siddiqi 1988). The Islamic Banking System (now called Islamic Finance House), established in Luxembourg in 1978, represents the first attempt at Islamic banking in the Western world. There is also an Islamic Bank International of Denmark, in Copenhagen, and the Islamic Investment Company has been set up in Melbourne, Australia. 3.2 Investment Banking Based on Islamic Shariah Principles Investment means ‘to lay out of money’ or fund provided for a legal purpose for a certain period. In Islamic Banking ‘Investment’ means utilization of fund or deployment of fund for a special legal purpose on profit/loss sharing basis for a certain period. Islam does not deny that capital, as a factor of production, deserves to be rewarded. Islam allows the owners of capital a share in a surplus which is uncertain. To put it differently, investors in the Islamic order have no right to demand a fixed rate of return. No one is entitled to any addition to the principal sum if he does not share in the risks involved. According to shariah principals Islami Banks always deals with good & service not with money in their investment procedures. The owner of the capital is called ‘Rabbul-mal’ & the entrepreneur borrower is called ‘mudarib’. At the deposit end of the scale, Islamic banks normally operate three broad categories of account, mainly current, savings, and investment accounts. The current account, as in the case of conventional banks, gives no return to the depositors. It is essentially a safekeeping (Al-Wadiah) arrangement between the depositors and the bank, which allows the depositors to withdraw their money at any time and permits the bank to use the depositors' money. The savings account is also operated on an Alwadiah basis, but the bank may at its absolute discretion pay the depositors a positive return periodically, depending on its own profitability. Such payment is considered lawful in Islam since it is not a condition for lending by the depositors to the bank, nor is it predetermined. The investment account is based on the Mudaraba principle, and the deposits are term deposits which cannot be withdrawn before maturity. The profit-sharing ratio varies from bank to bank and from time to time


depending on supply and demand conditions. In theory, the rate of return could be positive or negative, but in practice the returns have always been positive and quite comparable to rates conventional banks offer on their term deposits. At the investment portfolio end of the scale, Islamic banks employ a variety of instruments. The Mudaraba and Musharaka modes, referred to earlier, are supposedly the main conduits for the outflow of funds from the banks. In practice, however, Islamic banks have shown a strong preference for other modes which are less risky. The most commonly used mode of financing seems to be the 'mark-up' device which is termed Murabaha. In a Murabaha transaction, the bank finances the purchase of a good or asset by buying it on behalf of its client and adding a mark-up before reselling it to the client on a 'cost-plus' basis. It may appear at first glance that the mark-up is just another term for interest as charged by conventional banks, interest thus being admitted through the back door. What makes the Murabaha transaction Islamically legitimate is that the bank first acquires the asset and in the process it assumes certain risks between purchase and resale. The bank takes responsibility for the good before it is safely delivered to the client. The services rendered by the Islamic bank are therefore regarded as quite different from those of a conventional bank which simply lends money to the client to buy the good. There are mainly three modes of Investment in Islami Banking, These are Partnership Mode • •

Mudaraba Musharaka

Bai (Purchase & Sell) Mode • • • •

Bai-Muajjal Bai-Murabaha Bai-Slalam Istisna

Izara (Rental) Mode • • •

Hire Purchase Izara Bil Baia Leasing

Partnership Mode Mudaraba : It is the partnership Business between Investor & businessman. The main feature of this type of business of a shariah based bank is: i) There should be two parties: Bank & The businessman. Bank is called the Shaheb-E-Mal the business man is Mudarib (Manager).


ii) There should be written agreement/contract between the Bank & the Businessman which includes the nature of business, period/time, sharing of profit etc. iii) Bank will finance & the businessman will run the business. iv) The bank will not interfere the business. v) The businessman will appoint the employees & Run the business independently. vi) The business man will not take any salary or wages for his labor and he will maintain proper record in income-expenditure/sale-purchase etc. vii) The Shaheb-E-Mal will reserve the right to check/verify the accounts at the end of the business the profit will be distributed as terms of the contract. If the business incurred any loss, the entire loss will be bared by the Bank/Shaheb-E-Mal/Investor. Mudaraba mode is of following two types: 1. Mudaraba Mutlak: In which type of Mudaraba agreement the place of business, time, nature of business, number of business partners etc. are not specific - is called the Mudaraba Mutlak. Here the mudarab get full liberty about the business. 2. Mudaraba Mukkayada: In this type, as pert contract the mudarib has not full liberty to run the business. The nature of business, time, place etc. are specific in Mudaraba Mukkayada. Musharaka Musharaka Shirkat is a type of business is a type of partnership business- where capital of partners may be equal or more/less. All the partners have every right to participate on the business, but not compulsory as per agreement signed It is a system where labor will be given as per terms of the contract. Profit will also be distributed as per terms of contract. But loss will be shared as per size of investment. Musharaka/Shirkat is of following four types: ShirkatAl-Inan: - Capital of the partners can be more or less - Profit may be more or less as per contract considering the labor, expenditure, qualification etc. of the partners Shirkat –Al-Mafawada: - Profit or loss are compulsorily equal to all - The social status, expenditure, education etc. of all the partners should be equal. - The asset & liability of all the partners should be equal Shirkat-Al-Shanai: - All partners should be from a same trade/profession. - Experience of all the partners should be equal. - Profit or loss may be more or less as per contract.


Shirkat-Al-Wazuh : - It is a business of history & dignity of the partners. - The partners will purchase goods on credit and sale in cash. - Profit or loss will be shared in more or less as per contract. - In this type, partners have the right to withdraw himself from the partnership business. - If any partner died he will be removed from the partnership. The owner of capital (rabbul-mal) may 'invest' by allowing an entrepreneur with ideas and expertise to use the capital for productive purposes and he may share the profits, if any, with the entrepreneur borrower (mudarib); losses, if any, however, will be borne wholly by the rabbulmal. This mode of financing, termed mudaraba in the Islamic literature was in practice even in the pre Qur'anic days and, according to jurists, it was approved by the Prophet. Mudaraba and musharaka constitute, at least in principle if not in practice, the twin pillars of Islamic banking. The musharaka principle is invoked in the equity structure of Islamic banks and is similar to the modern concepts of partnership and joint stock ownership. In so far as the depositors are concerned, an Islamic bank acts as a mudarib which manages the funds of the depositors to generate profits subject to the rules of mudaraba as outlined above. The bank may in turn use the depositors' funds on a mudaraba basis in addition to other lawful modes of financing. In other words, the bank operates a two-tier mudaraba system in which it acts both as the mudarib on the saving side of the equation and as the rabbulmal on the investment portfolio side. The bank may also enter into musharaka contracts with the users of the funds, sharing profits and losses, as mentioned above. Bai (Purchase & Sell) Mode Islamic banks have also been resorting to purchase and resale of properties on a deferred payment basis, which is termed Bai-Muajjal. It is considered lawful in fiqh (jurisprudence) to charge a higher price for a good if payments are to be made at a later date. According to fiqh, this does not amount to charging interest, since it is not a lending transaction but a trading one. Reference must also be made to pre-paid purchase of goods, which is termed Bai-Salam, as a means used by Islamic banks to finance production. Here the price is paid at the time of the contract but the delivery would take place at a future date. This mode enables an entrepreneur to sell his output to the bank at a price determined in advance. Islamic banks, in keeping with modern times, have extended this facility to manufactures as well. Izara (Rental) Mode Leasing or Ijara is also frequently practiced by Islamic banks. Under this mode, the banks would buy the equipment or machinery and lease it out to their clients who may opt to buy the items eventually, in which case the monthly payments will consist of two components, i.e., rental for the use of the equipment and installment towards the purchase price. It is clear from the above sketch that Islamic banking goes beyond the pure financing activities of conventional banks. Islamic banks engage in equity financing and trade financing. By its very nature, Islamic banking is a risky business compared with conventional banking, for risk-sharing forms the very basis of all Islamic financial transactions. To minimize risks, however, Islamic banks have taken


pains to distribute the eggs over many baskets and have established reserve funds out of past profits which they can fall back on in the event of any major loss. 3.3 Comparison of Conventional Banking & Shariah Based Islamic Banking System From our previous discussion we got a clear picture of islami Banking System. Before we go for comparison of modern Banking & Shariah Based Islami Banking System, it is better to give a short description of conventional banking. Conventional banking does not follow one pattern. Commercial banking is based on a pure financial intermediation model, whereby banks mainly borrow from savers and then lend to enterprises or individuals. They make their profit from the margin between the borrowing and lending rates of interest. They also provide banking services, like letters of credit and guarantees. A proportion of their profit comes from the low-cost funds that they obtain through demand deposits. Commercial banks are prohibited from trading and their shareholding is severely restricted to a small proportion of their net worth. Because of the fractional reserve system, they produce derivative deposits, which allow them to multiply their low-cost resources. The process of bank lending is, however, subject to some problems that can make it inefficient. Borrowers usually know more about their own operations than lenders. Acting as lenders, banks face this information asymmetry. Because borrowers are in a position to hold back information from banks, they can use the loans they obtain for purposes other than those specified in the loan agreement exposing banks to unknown risks. They can also misreport their cash flows or declare bankruptcy fraudulently. Such problems are known as moral hazard. The ability of banks to secure repayment depends a great deal on whether the loan is effectively used for its purpose to produce enough returns for debt servicing. Even at government level, several countries have borrowed billions of dollars, used them unproductively for other purposes and ended up with serious debt problems. It is not always possible to close monitor their all investment clients. It is the credit rating of the borrower that plays a more important role for efficient use of Bank’s funding. On the other hand, an Islamic bank is a deposit-taking banking institution whose scope of activities includes all currently known banking activities, excluding borrowing and lending on the basis of interest. On the liabilities side, it mobilizes funds on the basis of a Mudarabah or Wakalah (agent) contract. It can also accept demand deposits which are treated as interest-free loans from the clients to the bank and which are guaranteed. On the assets side, it advances funds on a profit-and–loss sharing or a debt-creating basis, in accordance with the principles of the Sharčah. Islami banks are allowed to hold equity and also carry out operations like trading and insurance, which usually lie beyond the sphere of conventional banking. Islami banks are better equipped to deal with information asymmetry than their commercial counterparts. They finance their business customers through a combination of shareholding and lending. Shareholding allows Islami banks to sit on the boards of directors of their business customers, which enables them to monitor the use of their funds at a low cost. The reduction of the monitoring costs reduces business failures and adds efficiency to the banking system. An Islamic bank shares its net earnings with its depositors in a way that depends on the size and date-to-maturity of each deposit. Depositors must be informed beforehand of the formula used for sharing the net earnings with the bank. We may, therefore, say that Islamic banks are closer to the universal banking model. They are allowed to provide finance through a multitude of modes including the taking of equity. Islamic banks would benefit from this by using a combination of shareholding and other Islamic modes of finance. Even when they use trade-based, debt creating modes, the financing is closely linked to real sector


activities. Credit worthiness remains relevant but the crucial role is played by the productivity/profitability of the project financed. So the basic differences between Conventional Banking and Islami banking are their working principles. The foundation of Islamic bank is based on the Islamic faith and must stay within the limits of Islamic Law or the Shariah in all of its actions and deeds. The original meaning of the Arabic word Shariah is ‘the way to the source of life’ and is now used to refer to legal system in keeping with the code of behaviour called for by the Holly Qur’an (Koran). Amongst the governing principles of an Islamic bank are: • • • • •

The absence of interest-based (riba) transactions; The avoidance of economic activities involving oppression (zulm) The avoidance of economic activities involving speculation (gharar); The introduction of an Islamic tax, zakat; The discouragement of the production of goods and services which contradict the Islamic value (haram)

On the other hand, conventional banking is essentially based on the debtor-creditor relationship between the depositors and the bank on one hand, and between the borrowers and the bank on the other. Interest is considered to be the price of credit, reflecting the opportunity cost of money. The other principle pertaining to financial transactions in Islam is that there should not be any reward without taking a risk. This principle is applicable to both labor and capital. As no payment is allowed for labor, unless it is applied to work, there is no reward for capital unless it is exposed to business risk. Thus, financial intermediation in an Islamic framework has been developed on the basis of the abovementioned principles. Consequently financial relationships in Islam have been participatory in nature. Chapter 4 Profile of Exim Bank Ltd. & Islamic Banking 4.1 Historical Background of EXIM Bank Ltd: EXIM Bank Ltd. was incorporated under the companies Act 1994, on the 2 nd June 1999 with the leadership of Late Mr. Shahjahan Kabir, founder chairman who had a long dream of floating a commercial bank which would contribute to the social-economic development of our country. He had a long experience as a good banker. A group of highly qualified and successful entrepreneurs joined their hands with the founder chairman to materialize his dream. In deed, all of them proved themselves in their respective business as most successful star with their endeavor, intelligence, hard working and talent entrepreneurship. Among them, Mr. Nazrul Islam Mazumder became the honorable chairman after the demise of the honorable founder chairman. EXIM Bank Ltd. believes in togetherness with service. As a commercial bank we will do all traditional business including introduction of a wide rang of savings and credit products, retail banking and ancillary services with the support of modern technology and professional skills. The Export Import Bank of Bangladesh Ltd. commenced formal commercial banking operation from 3 rd August 1999 with the permission of Bangladesh Bank. The sponsors of the bank are leading business personalities and reputed industrialists. The bank has a sound capital base; its authorized capital is Tk.1000.00 million. While it’s initial paid up capital is Tk.22.50 million subscribed by sponsors. The authorized capital was further raised up to


Tk.3500.00 million on the year 2006. To solidify its capital base further the paid up capital to be raised within a reasonable period. Since starting from the year 1999 the paid up capital has raised unto Tk.3373.95 million at the ending of third quarter 2009. The bank will be immensely benefited furthermore from the able leadership of the chairman and the valuable advice and guidance of the advisor. 0rginally the name of the bank was BEXIM Bank of Bangladesh Ltd. later the management of BEXIM Bank of Bangladesh Ltd. changed the name as Export Import Bank of Bangladesh Ltd. (Exim Bank Ltd) because of the case lodged by Beximco group of industries. The Board of directors wants to carry out the all services of the management of administration and credit portfolio independent without any undue influence from outside. The bank will operate with integrity, competence and farsightedness abiding by all principals and provisions laid down in the bank company act 1991. 4.2 Launching of Islami Banking: Considering the inherent desire of the religious Muslims, EXIM Bank has launched Islami Banking system and inaugurates two Islami Banking Branches in the year 2002. The Islami Banking branches perform their activities under the guidance and supervision of a body called “SHARIAH COUNCIL”. After a certain period Exim Bank fully migrated its conventional banking system to Islami Banking System on 1st July 2004. It was the first time in Bangladesh to be migrated at a time all the branches from conventional banking operation into Shariah based Islami banking operation without any trouble. Lot of uncertainties and adversities were there into this migration process. The officers and executives of the Bank motivated their valued customers by counseling and persuasion in light with the spirit of Islam especially for the non-Muslim customers. It has been made possible by following a systematic procedure of migration under the leadership of honorable then Managing Director. Since the inception of Islami Banking System, Exim Bank Ltd. is running their all activities according to Islamic Shariah under the guideline and monitoring of Shariah Council consisting of eleven member committee lead by the council Chairman Professor Maulana Mohammad Salahuddin. 4.3 Vision of EXIM Bank Ltd : The vision of the bank is ‘Together, Towards, Tomorrow’, as the name of implies, is not a type of bank in some countries on the globe, but is the first of its kind in Bangladesh. It believes in togetherness with its customers, in its march on the road of growth and progress with services. To achieve the desired goal, there will be pursuit of excellence at all stages with a climate of continuous improvement, because. In EXIM bank, all are believe, the line of excellence is never ending. Bank’s strategic plans and networking will strength its competitive edge over others in rapidly changing competitive environments. Its personalized quality services to the customers with the trend of constant improvement will be the cornerstone to achieve operational success.


4.4 Objectives of EXIM Bank Ltd : Bangladesh is one of the largest economic nation in South Asian region and also an integral part of global economy. It also maintains significant presence in the forum of LDC (Least Developed Countries). Being such there is a vital requirement for Bangladesh to place the customary banking practice in harness with the global trades of a free market economy by following international banking customs, practices and standards. Today clients of a bank in Bangladesh are well exposed to international markets and business. They required to be updated with their practice and standards to meet the demands of achieving harmony in the high standards of world’s free economy. EXIM bank Ltd. fully appreciates the importance and implication of the rapidly emerging competition in the banking and finance sector of Bangladesh as well as their foreign counterparts. It intends financing its customer suited to his/her place in the market. In this regards the EXIM bank emphasizes on its employment along with the technical aspects by continuous up gradation of their skills. This is the age of E-Commerce. The global economy runs with immense support of information technology. All over the world, financial transactions are based on the online facility which enables the faster correspondence between the countries to enhance the business dealings. Bangladesh also is not beyond this grace of science. The financial sector of our country is also in quick response to grab the flair of E-commerce. Exim bank, along with other financial intermediary organizations of our country, started automated banking facility to their clients. With the intention to pursue the commitment to its clients, Exim Bank recently introduced core online banking system through implementing World renowned software Swiss based Temnos T-24 software, which enables the Bank to stay updated with faster global business. The Bank has chalked out the following corporate objectives in order to ensure smooth achievement to its goals: • • • • •

To be the most caring and customer friendly and service oriented bank. To create a technology based most efficient banking environment for its customers To ensure ethics and transparency in all levels To ensure sustainable growth and establish full value to the honorable stakeholders and Above all, to add effective contribution to the national economy.

Eventually the bank also emphasizes on: • • • • • • • • •

Providing high quality financial services in export and import trade Providing efficient customer service Maintaining corporate and business ethics Being trusted repository customers’ money and their financial adviser Making its products superior and rewarding to the customers Display team spirit and professionalism Sound capital base. Enhancement of share holders’ wealth Fulfilling its social commitments by expanding its charitable and humanitarian activities.


4.5 Financial Overview of EXIM Bank Ltd. The performance and activities of Exim Bank Ltd., during the period under review, is more significant simultaneously in development and achievements of continuous growth rate in all the areas of banking operations. Celebrating its 10 years of banking operation at the end of year 2009, it reflected continuous growth in Service and Financial sectors as well. A precise picture of its continuous growth in different areas has given below, Capital & Reserve Fund: The bank started its journey with an authorized capital of Tk.1,000.00 million while its initial paid up capital was Tk.225.00 million subscribed by the sponsors in the year 1999. The authorized capital was enhanced up to Tk.3500.00 million on the year 2006. In its voyage the paid up capital was significantly increased. The reserve of the bank as on 31 st December 2008 stood at Tk.6844.65 million including paid up capital of Tk.2677.75 million. The bank also made provision on classified / unclassified investment which is augmented to Tk.925.75 million. Up to third quarter of year 2009 total paid up capital of Exim Bank stood up to Tk.3373.95 million.

Authorised\Paid Up Capital

Analysis of capital structure : Capital structure of EXIM Bank has changed from year to year. The components of the capital structure are paid-up capital; proposed issue of dividend, share premium, statutory reserve, proposed cash dividend, retained earnings and other reserve. Capital Position of EXIM Bank Ltd: Year Authorized Capital (TK) In Paid Up Capital (Tk) In Million Million 2009 (up to 3rd Quarter) 3500 3373.95 2008 3500 2677.75 2007 3500 2142.20 2006 3500 1713.76 2005 1000 878.85 2004 1000 627.75 2003 1000 313.88 2002 1000 253.13 2001 1000 225.00 4000 3500 3000 2500 2000

Authorized Capital (TK) In Million Paid Up Capital (Tk) In Million

1500 1000 500 0 2009 (up to 3rd Quarter)

2008

2007

2006

2005

2004

Year

Chart of Authorized & Paid up Capital of Exim Bank Ltd. Investment and Advance:

2003

2002

2001


Investment is the core asset of a Bank. The Bank gives emphasis to acquire quality assets and does appropriate lending risk analysis while approving commercial and trade investment of client. During the last five years, investment experienced vibrant activities with significant growth, the total loans and advances at the end of the year 2008 increased by Tk. 34305.24 million, 177.45% growth over last five years. This is due to increased commercial and trade financing term with different modes of Islamic Investments and working capital support. The classified loan position is also nominal. This was achieved by rendering due attention and monitoring high-risk advance. In the year 2002 classified advance is amounted to Tk.7.63 million, which was only 0.09% of total loans and advances. With the potential increase investment classified figure also increased shortly. At the end of year 2008 total Investment reached unto Tk.53637.68 million and classified investment stood up to 1.88%. Loan and Advance Position of EXIM Bank: Year 2004

Amount (TK in Million) 19332.44

2005

26046.34

2006

32641.27

2007

40195.24

2008

53637.68

Amount of Investmen (TK Mn)

Source of Data: Exim Bank annual report 2008 60000 50000 2004

40000

2005

30000

2006 2007

20000

2008

10000 0 Year

Advance position of Exim Bank Ltd. (Source of Data: Exim Bank annual report 2008) (** Detailed investment positions & analysis shown at Annexure I & II) 4.6 Automation of EXIM Bank limited: In today’s global business scenario, particularly in banking sector, technology play a vital role in executing all sorts of customer friendly banking operation with cost efficient services. Technology has become an abide of necessity rather than option in financial institutions. Keeping in this in view, the bank has already computerized all of its branches from day one its opening. However under a comprehensive strategy of 3 phase state of the art automation program, the Bank, in it’s first phase, has connected all the branches in a wide area network VSAT and optical fiber connections for providing any branch banking services to its valued customers and the customers are enjoying any branch banking facility.


In second phase, procurement of a centralized shariah based soft ware is going on which is expected to be completed by this year and tenure of the 2 nd phase is scheduled to be completed within the year2007. Presently Total number of Branches is 53and so far 18 branches have been implemented under new T-24 online software. 4.7 Organizational structure of EXIM Bank The Sponsors of the Bank are leading business personalities and industrialists of Bangladesh. The chairman of the Bored of Directors, Mr. Md. Nazrul Islam Majumdar is a leading business personality and a social worker. Alamgir Kabir, the Advisor of the Bank is a reputed senior Chartered Accountant having thirty years vast experience in A/Cs, Audit, Finance and Banking at home and abroad. Mr. Kazi Masihur Rahman, the Managing Director of the Bank, is widely trained at home and abroad, having three decades of long experience in banking profession within the country and abroad. Management Structure of EXIM Bank Ltd: Board of Directors consists of ten Directors, one Chairman, and one Company Secretary and one Managing Director. Chairman: Md. Nazrul Islam Majumder Directors: •

Mr Mohammad Abdullah

Mr. Abdullah Al-Zahir Shapan

Mrs. Nasreen Islam

Mrs. Nasima Akhter

Mr. A.K.M. Nurul Fazal Bulbul

Mr. Md. Zubayer Kabir

Mr. Md. Habibullah

Mr. Md. Abdul Mannan

Al-haj Md. Nurul Amin

Mr. Mohammad Shahidullah

Mr. Mohammad Sekander khan (Independent Director)

Bay Leasing & Investment

(Represented by Mr. Mahbubur Rashid

Managing Director Mr. Kazi Masihur Rahman


Company Secretary Mr. Md. Golam Mahbub Executive Committee: Executive Committee forming by following them. Chairman: Md. Nazrul Islam Majumder Members: •

Mr.Mohammad Abdullah

Mrs. Nasreen Islam

Mrs. Nasima Akhter

Mr. A.K.M. Nurul Fazal Bulbul

Al-haj Md. Nurul Amin

Mr.Md. Zubayer Kabir

Mr.Md. Habibullah

Mr. Md. Abdul Mannan

Mr. Abdullah Al-Zahir Shapan

Mr. Mohammad Shahidullah

Bay Leasing & Investment

(Represented by Mr. Mahbubur Rashid •

Mr. Kazi Masihur Rahman

Organogram EXIM bank maintains the top to bottom level management, which hierarchy is the simplest vertical shape. Top level management, mid level management, and bottom line there is logistic support. Communication is possible in all level of managements. There is no management bottleneck and the management is not autocratic. Function is defined at each level of management. The maintaining management level of EXIM bank ltd. as like following diagram ; Chairman ▼ Board of Director ▼ Managing Director Additional Managing Director ▼


DMD-I

DMD-II

DMD-III

▼ Senior Executives Executive Vice President Senior Vice President

/

▼ Vice Precedent / Senior Assistant Vice President/ Asst. Vice President ▼ Senior Principal Officer ▼ Principal Officer ▼ Executive Officer ▼ Senior Officer Officer & Asst. Officer For any financial and non-financial organization, Management is the most valuable and important resources of any kind of organization. And, a well-organize management provides the organization to reach its ultimate goal. Management means planning, organizing, staffing, directing and controlling of all financial and non-financial resources of an organization. Different aspects of management practice in EXIM Bank are discussed below. 4.8 Human Resources Practices in EXIM Bank: Employees are the core resources of any organization. Without them, one cannot run their organization. And, human resources approach is concerned with the growth and development of people toward higher level of competency, creativity and fulfillment. It helps employees become better, more responsible persons, and then it tries to create a climate in which they may contribute to the limits of their improved abilities. It assumes that expanded capabilities and opportunities for people will lead directly to improvements in operating effectiveness. Essentially, the human resources approach means that better people achieve better results.

Recruitment: The recruitment in EXIM Bank is done in two ways. One as a “Management Trainee Officer” for the management program and it has a probation period of one year. Another one is non- management


level as “Trainee Assistant Officers”. Management Trainee Officer is recruited in officer category and their career path is headed towards different managerial jobs. The set-vice rule of EXIM Bank states the recruitment policy of the bank. In, general the board of directors determines the recruitment policy of the bank from time to time. The minimum entry-level qualification for any official position other than supportive management is a Bachelors degree. However, informally the management prefers a minimum master’s degree for the appointed of probationary officers in the Executive Officer position. The recruitment for entry level positions begins with a formal written test which is conducted and supervised by the Institute of Business Administration, University of Dhaka. After successful completion of the written test, a personal interview is conducted for the successful candidates by a panel of experts comprising of renowned bureaucrats and prominent bankers of the country. 4.9 EXIM Bank at a Glance: Name:

Export Import Bank of Bangladesh Limited

Essence:

- Local Bank Global Network - Shariah Based Islami Banking

Nature of Business: Registered office:

Banking service and Profit oriented ‘SYMPHONY’,

Date of Incorporate

Plot # SE (F)-9, Road # 142 Gulshan Avenue, Dhaka-1212 Phone : 880-2-9889363 Fax : 880-29889358 SWIFT: EXBKBDDH, E-mail: eximho@eximbankbd.com Website : www.eximbankbd.com : June 02, 1999

Inauguration of first branch

: August 03, 1999.

Chairman Secretary Advisor

: Mr. Md. Nazrul Islam Mazumder : Md. Golam Mahbub : Alamgir Kabir, FCA

Managing Director

: Mr. Kazi Masihur Rahman

Number of Branch

: 52

Total Manpower

: 1312

Authorized Capital

: Taka 3500 million

Paid up Capital

: Taka 2677.75 million (Up to Dec 2008)

Reserve Fund

: Taka 1532.55 million (Up to June 2008)

Chapter 5 Investment Banking in Exim Bank Ltd. 5.1 Introduction


Export Import Bank of Bangladesh Limited is a new generation Bank. It is committed to provide high quality financial services / products to contribute to the G.D.P. of the country through stimulating trade & commerce, accelerating the place of industrialization, Boosting up export, creating employment opportunity for the educated youth, poverty elevation, raising standard of living of limited income group and over all sustainable socio-economic development of the country. In achieving the aforesaid objective of the Bank, Investment operation of the Bank is of paramount importance as the greatest share of the total revenue of the bank is generated from it, maximum risk is centered in it and even the very existence of bank depends on prudent management of the investment portfolio. The failure of a commercial Bank is associated with the problem in investment portfolio and is less often the result of shrinkage in the value of other assets. As such investment portfolio not only features dominant in the assets structure of the Bank, it is critically important to the success of the Bank also. Being an financial intermediary Exim Bank also performs two types of functions mainly; deposit customer’s surplus unit and invest to others who have deficit unit. From the margin of deposit & investment Bank usually earns their profit along with their service income. The Bank follows an Investment Policy and Control Guideline which strictly comply with Islamic Shariah Principles. Following the regulations of Bangladesh Bank, Exim Bank provides suitable investment services & products for the prioritize sectors which must meet the other requisites as by the bank from time to time. The defined Sectors are as follows. • • • • • • • • • • • • • • • • •

Steel & Engineering Food & Allied. Agriculture. Textile & Garments. Pharmaceuticals & Chemicals Paper & Paper Products Service Industries. Housing & Real Estate Cement Brickfields Edible Oil Assembling Industries Cottage Industries Electronics & Electrical Commodities Construction Company Trading (Retail & Wholesale) Others

Every year at the time of investment budgeting a clear indication of Bank’s appetite for growth to be reflected. Approved investment budget are strictly followed for the development of the bank. 5.2 Investment categories Exim Bank primarily divided investment s into two major groups which are as follows. 1) Term Based Investment 2) Continuous Investment 1) Term Based Investment : These are the investments made by the Bank with fixed repayment schedules. The term of investment are defined as follows,


-- Short Term -- Medium Term -- Long term

: Upto 12 months : More than 12 and upto 36 months. : More than 36 months.

2) Continuous Investment : These are the investments having no fixed repayment schedule, but have an expiry date which is renewable on satisfactory performance. Most of the cases the expiry date is within one year period. Further all the categories of investments have been accommodated under the 7 prime categories as under : I. Agriculture: Investments facilities to the agricultural sector falls under this category. It is subdivided into two major heads. a) Investment to primary producers : Financing under this categories refer to the investment facilities allowed to production units engaged in farming, fishing, forestry or livestock. Investment to tea gardens for production are treated as agricultural investments, but investment to tea gardens for exports are to be treated as ‘Investment on Exports’. Similarly medium & long term investments to tea garden are categorized as industrial term lending. b) Investment to dealers/ distributors : It refers to the financing allowed to input dealers and (or0 distributors in the agricultural sectors Agricultural investments may include, short medium and long investments as well as continuing investments, as it may fall under the head Izara Bill Baia/ Izara Bill Baia (Higher purchase) / Izara Bill Baia (Lease Finance) II. Large & Medium Scale Industry : This category of investments accommodate the medium & long term financing for capital structure formation of new industries or for BMRE of the existing units who are engaged in manufacturing goods and services. This type of investments are mainly of Izara Bill Baia mode. III. Small & Cottage Industry : These are the medium and long term investments allowed to small & cottage manufacturing industries (Small industry is presently defined as those establishments whose total investments in fixed capital such as land, building and machinery and equipments (excluding taxes and duties)does not exceed 30 million taka. Like the large & Medium Scale industry it is also allowed in the form of Izara Bill Baia (HP) / Izara Bill Baia (LF) IV. Working Capital : Investments allowed to the manufacturing units to meet their working capital requirements, irrespective of their size-big, medium & small, fall under the category. These are usually continuous investments and as such fall under the head Bai-Muazzal. V. Investments on Exports :


Investment facilities facilities allowed to facilitate exports of all items against Letter of Credit and/ or confirmed export orders fall under this category it is accommodated under the heads Musharaka PreShipment (ECC), Musharaka Pre-Shipment (PC, Foreign documentary Bill Purchased (FDBP), Local documentary Bill Purchased (LDBP) etc. VI. Commercial Lending : Short Term Investments and continuing Investments allowed for commercial purposes other than export fall under this category. It included Import financing, financing for internal trade, Service establishments etc. No Medium and long term investments are accommodated here. This category of investments are allowed in the form of ( i) Murabaha Post Import (MPI, (ii) Investments against Trust Receipt (TR),(ii)i Murabaha Import Bills (MIB), (iv) Bai-Muazzal (v) Iizara Bill Baia etc. for commercial Purposes. VII. Others : Any investment that does not fall under the above categories is considered under the category ‘Others’. It includes Investment to (i) Transport equipments, (ii) Construction work including housing (commercial/ residential), (iii) Work order finance, (iv) Personal Investments etc. 5.3 Lending Principles: The Principle of lending is a collection of certain accepted time tested standards, which ensure the proper use of Investment fund in a profitable way and its timely recovery. Different authors describe different principles for sound lending. Exim Bank follows below mentioned principles complying Islamic Shariah 1. 2. 3. 4. 5.

Safety Security Liquidity Adequate yield Diversity

Safety: Safety should get the prior importance in the time of sanctioning the Investment. At the time of maturity the borrower may not will or may unable to pay the Investment amount. Therefore, in the time of sanctioning the Investment adequate securities should be taken from the borrowers to recover the Investment. Banker should not sacrifice safety for profitability. EXIM Bank Ltd. exercises the lending function only when it is safe and that the risk factor is adequately mitigated and covered. Safety depends upon: • •

The security offered by the borrower; and The repaying capacity and willingness of the debtor to repay the Investment with profit.

Liquidity: Banker should consider the liquidity of the Investment in time of sanctioning it. Liquidity is necessary to meet the consumer need when required. Security: Banker should be careful in the selection of security to maintain the safety of the Investment. Banker should properly evaluate the proper value of the security. If the estimated value is less than or equal to Investment amount, the Investment should be given against such securities. The more the cash near


item the good the security. In the time of valuing the security, the Banker should be more conservative. Adequate Yield: As a commercial origination, Banker should consider the profitability. So banker should consider the profit rate when go for lending. Always Banker should fix such a profit rate for its lending which should be higher than its savings deposits profit rate. To ensure this profitability Banker should consider the prospect of the project. Diversity: Banker should minimize the portfolio risk by putting its fund in the different fields. If Bank put its entire Investment able fund in one sector it will increase the risk. Banker should distribute its Investment able fund in different sectors. So if it faces any problem in any sector it can be covered by the profit of another sector. Process of Investment Heads

Characteristics

Application

Applicant applies for the Investment in the prescribed form of the bank describing the types and purpose of Investment.

1. Collecting credit information about the applicant to determine the credit worthiness of the borrower. Sources of information i. Personal Investigation, ii. Confidential Report Office/Branch

from

other

bank,

Head

iii. Chamber of Commerce etc. Scrutinize/ Sanction

2. CIB (Central Information Bureau) report from Central Bank. i. Evaluation of compliance with its lending policy. ii. Evaluating the proposed security. 3. Credit Risk Grading (CRG) is a must for the Investment exceeding Tk.50.00 lac – as ordered by Bangladesh Bank. 4. If everything is in accordance with the Investment the Branches send Investment proposal which contains terms and conditions of Investment for approval of H.O. or Manager.

Documentation

If the proposal is sanctioned by approval authority the Branches ensures the proper documentation of securities after mortgage/ Lien / Hypothecation.


An Investment Account is opened. Where Respective Investment A/C -------------------------Dr. Disbursement

Customer A/C --------------------------------------------Cr.

5.4 MODES OF INVESTMENTS EXIM Bank Ltd. offers different modes of Investments. All the modes of investments are basically falls under the following 6(six) principles of Shariah Based Investments These are as follows: 1. 2. 3. 4. 5. 6. 7. 8. 9.

Bai-Murabaha Bai-Muazzal Izara Bill Baia Waziarat Bill Wakila Bai Salam Quard Bank Guarantee Quard Wazirat Bill Wakala.

Other featured investment schemes are as follows: • • • • • • •

ECC/ Pre-shipment Investment Murabaha Investment Goods/Murabaha Post Import (MPI) Inland Bills purchased Foreign Bills purchased Foreign Bills purchased (Documentary) House Building Investment House Building Investment (staff)

5.4.1 Bai-Murabaha Definition : Bai Murabaha is an agreement of mutual promise between a buyer and seller where the seller promises to sell and buyer promises to buy specific goods at a cost plus agreed upon profit payable in cash or any fixed future date at lump sum or by installments. Important Futures: •

Established at least for a moment. The bank also engage the investment client as buying agent as per previous agreement to purchase the goods for third party on behalf of the bank who after purchase shall handover possession of the same to the bank at least for a second and thereafter the same shall immediately taken into pledge of the bank. There must be three parties in order to perform buying and selling under murabaha.


• • •

a) Bank. b) Seller of goods. c) Purchaser of goods. A commodity in the true sense of the term must be involved in buying and selling. There must be an agreement between the Bank and client. On expiry of the stipulated period, bank can terminate the contract and dispose of the pledged goods as its own discretion.

Features: A. It is an offer by the customer to purchase specific goods permissible by Shariah. B. It is a obligation /binding of the customers to purchase the goods. C. Bank purchases the goods at the request or order of customer and sells the same with an agreed profit D. There must be three parties in order to perform buying and selling under murabaha. a) Bank. b) Seller of goods c) Purchaser of goods E. Cost /purchase price and markup profit must be disclosed separately. F. Stock and availability of goods is a basic condition G. Price once set cannot be changed. H. Bank must assume the risk of goods until those are actually sold and delivered. I.

After purchasing of goods the customer shall take delivery/accept of the same signing on the back of purchase schedule and immediately after the bank shall take the goods on pledge to secure its investment.

J.

Margin to be set

K. Drawing power to be set L. Calculation of landed cost M. Bank is only custodian of goods after sales N. Usually goods are delivered against cash payment. But at times goods are released on credit ( Murabaha Bai Muazzal) and also goods are released in future date but payment is received at present (Murabaha Bai Salam) O. Usually goods cannot be sold to other customer though the price is high as the title of goods does not belong to bank. But bank may sell the goods to other customer if the purchaser violate the contract i.e. the customer do not take delivery of the goods. P. Godown charge, transport cost, insurance and salary of godown keeper and guard to be born by the customer as per agreement. Q. Cash/ Collateral securities may be taken


INDUCTION OF CLIENT: • • •

Client must have a current account. He must maintain the current account satisfactory for a reasonable period. Preliminary discussion shall be hold with the prospective client regarding his investment needs and business experience. He will be brief on the salient features of Murabaha mood of investment in general and usual terms and conditions. If the client is an old one, his past performance must be referred to. If he is new to the bank his past record like limit enjoyed, turnover etc.

APPLICATION: • • • •

Application in duplicate form all types of clients on Adv. 126 (R) for all purposes other than the purposes for investment under different Schemes shall be obtained. Application for investment under different Schemes shall be made in prescribed forms developed for each of the Schemes. Photograph(s) of the proprietor/partners/directors shall be affixed on the top right hand corner of the application form. The application of the client shall be scrutinized to see that: a. All columns are properly filled in. b. Particulars and information given therein are complete and correct in all respect. c. All required documents/papers as listed in the footnote of the application form are submitted. d. It is signed (as per specimen signature with the Bank) by the client.

PROCESSING AND APPRAISAL: • • • • • • •

• • •

Shariah permissibility of the items shall be examined proposal shall be rejected if not permitted by shariah. Credit restriction schedule of Bangladesh Bank and head office current investment policy guidelines are checked. The business sites of the client are visited. The particulars, information and figures in the application form shall be filed with the original documents and must be sanguine about its genuineness and correctness. Request for confidential report on the client from local branches. Obtain report from CIB of Bangladesh bank through head office investment division as per latest instruction circular issued by head office in this regard. Obtain declaration of the client about his liability (contingent & real) with other Banks/ financial institutions/leasing companies etc. In respect of land, building, other assets and properties proposed to be mortgaged or hypothecated prime- facie genuineness and correctness in course of reference to documents & site inspection & valuation is made by enlisted valuation companies of the Bank. Forward documents, titles deeds and other relevant papers to the approved lawyer of the bank for examination and furnishing his opinion. All the documents along with client’s application & valuation report the investment proposal is sent to Head Office for approval. The proposal may be classified as under:


o o o o o • • •

Murabaha (Pledge) Murabaha Post Import (MPI) Murabaha Import Bill (MIB) Murabaha Trust Receipt (MTR) Murabaha (Industrial)

Investment made to the industrial undertaking for supply of machineries, equipment, raw materials etc. Proposal for ‘Industrial Murabaha’ shall be appraised in required form. Storage charge such as the following shall be realized to the debit of the client’s relative investment accounts. 1. Proportion amount of insurance premium. 2. Proportioned amount of godown salary etc. Workout sales price of goods to be disclosed: a)Purchase price of goods. Or b) Markup Profit of the bank.

Step by step process for Murabaha

Head office process the proposal and conveys their decision to the branch/EC approval to the branch

Branch receives the approval and advice the same to the customer

Documentation and other formalities to be completed by the branch

Request head office investment administration division for obtaining disbursement authority.

Head Office verify the checklist and give permission for disbursement

Disbursement authorization received by the branch

Follow up and supervision

Recovery and adjustment


Step –1 :Approval process

Step-2 :Approval advice

Step-3 :Documentation

• • • •

The investment proposal is forwarded to HO HO investment committee analyze the proposal If positive, sanction advice send to Branch If negative, declined message send to branch

• • •

Branch receives approval letter Certain terms and conditions Branch advices the Sanction letter to customer

Fulfillment of terms and conditions by the customer o Acceptance of sanction advice by the customer o Personal guarantee(if any) o Charge documents  DP note(single and joint)  Letter of hypothecation  Letter of disbursement  Letter of continuity  Letter of arrangement  Letter of disclaimer  Balance confirmation  DP note delivery letter  DP note revival letter  Purchase schedule  Murabaha agreement  Buying agent agreement o Security document (If Investment is backed by collateral security)  Following original documents to be vetted for genuineness by the enlisted legal advisor • Original Title Deed • Mutation Parcha with DCR • Rent receipt • CS/SA/RS/Mahanagar Parcha • Bia deeds • NEC • Approval from respective statutory authority • Others  RM with RIPA supported by letter of satisfaction by enlisted lawyer.  Insurance on Limit amount of Investments goods from enlisted insurance company of the Bank. o CIB and CRG report

Step-4 : Preparation of Checklist • Preparation of Checklist for disbursement permission from Head Office o Acceptance o Charge documents o Security documents o Shariah permissible goods o CIB report o CRG


o o o o

Certificate from Department of Environment Certificate from Department of Fire Service & Civil Defence Certificate from Department for Inspection of Factories Others

Step-5 : Disbursement authorization • Branch seek disbursement authorization from Head Office complying terms and conditions • Head office verifies the checklist with sanctioned terms and condition • If comply with terms & condition then give permission for disbursement Step-6 : Disbursement Process • Branch receive the disbursement permission from Head Office • Branch receive request for purchasing goods from customer • Branch purchase specified goods directly or through buying agent by creating Murabaha Account. • Payment will be made by PO/DD/AWCD/Link A/C • Release of markup profit • After signing Murabaha agreement by the customer, branch will take the goods under its custody. • The goods are to be insured by the client from enlisted insurance company of the Bank • After cash payment by customer bank will deliver the goods to its customer. • A register is maintained for delivery of goods under each delivery order (D.O). Step-7 : Follow-up and Supervision • Bank is liable to keep the goods in good condition as custodian of goods • Reminder sent to customer before expiry of deal (MIS) • Others Step-8 : Recovery and adjustment • Partial adjustment is allowed • If full adjustment before expiry, rebate will be given to customer • If partial adjustment before expiry and final adjustment on expiry, rebate will be given to customer • If partial adjustment before expiry but final adjustment after expiry rebate will not be given to customer • If unadjusted within expiry, compensation will be charged from the day after expiry till adjustment Step-9: Classification & Provisioning Basis of Investment Classification: A) Objective


Past Due / Overdue Categories Continuous Investment Demand Investment

Day of Past Due/ Overdue start Following the day of expiry date, if unpaid Following the day of expiry date, if unpaid

Amount of Past Due/Overdue Balance Amount Balance Amount

Standard: All Unclassified Investment other than SMA Special Mention Account (SMA): A Continuous or demand Investment which will remain overdue for a period of 90 days or more. Sub-standard, Doubtful and Bad/Loss-Continuous Classification Sub-standard

Criteria Past Due/ Overdue for 6 months or above but not over 9 months Past Due/ Overdue for 9 months or above but not over 12 months Past Due/ Overdue for 12 months or above

Doubtful Bad/Loss Sub-standard, Doubtful and Bad/Loss-Demand Classification Sub-standard Doubtful Bad/Loss

Criteria Past Due/ Overdue for 6 months or above but not over 9 months from the date of claim or creation of forced investment Past Due/ Overdue for 9 months or above but not over 12 months from the date of claim or creation of forced investment Past Due/ Overdue for 12 months or above from the date of claim or creation of forced investment

B) Qualitative Judgment: As per Head Office or management discretion Accounting of Profit of classified Investment: • Any investment classified as SMA, Sub-standard or Doubtful, profit accrued on such investment account will be credited to profit/compensation suspense account instead of crediting the same to income account. • Any investment classified as ‘Bad/Loss’, charging of profit in the same account will be ceased. But to be calculated in a separate sheet so that the uncharged profit/compensation can be obtained at any time or at the time of filing a law- suit. Maintenance of Provision: A) General Provision Types All unclassified investment (other than Small Enterprise, Consumer Financing and Special Mention Account) Unclassified investment for Small Enterprise Financing Unclassified investment for Consumer Financing

Percentage provision @1% @2%

of


-Housing Finance -Loans for Professional to set up business -Other than above two Special Mention Account* Off-balance Sheet Exposure

@2% @2% @5% @5% @1%

*Profit on suspense to be deducted from investment amount B) (i)Provision on Classified Continuous and Demand Investment: Types Sub- Standard Doubtful Bad /Loss

Percentage provision @ 20 % @ 50 % @ 100 %

of

Based for provision: Provision will be maintained at the above rate on the balance to be ascertained by deducting the amount of Profit Suspense and value of Eligible Securities from the outstanding balance of classified accounts. Eligible Securities: In the definition of Eligible Securities as mentioned in the above paragraph the following securities will be included as eligible securities in determining base for provision. -100% of deposit under lien against the loan -100% of the value of government bond/savings certificate under lien -100% of the value of guarantee given by Government or Bangladesh Bank -100% of the market value of Gold or Gold ornaments pledged with the Bank -50% of the market value of easily marketable commodities kept under control of the bank. -Maximum 50% of the market value of land and building mortgaged with the bank -50% of the average market value for last 06 months or 50% of the face value, whichever is less, of the shares traded in stock exchange. Step –10: Rescheduling: When a classified account is rescheduled then the classification status will be changed in to unclassified (Standard) account. In case of rescheduling down payment should be as follows

Serial

Amount

of Amount of Down payment ex pi re d lo an

1

Up to 1 crore

15% on outstanding

2

1crore to 5 crore

10% but not less than TK. 15 Lac.

3

5 crore and above

5% but not less than TK. 50 Lac


Exception : No down payment is required for rescheduling investment accounts of Readymade Garments which became stuck-up due to real stock lot (present & past) with a condition that the sale proceeds of stock lot goods to be credited to respective invest account. Restrictions after reschedule: After reschedule (if any) the customer will get new facility subject to fulfillment of conditions

following

a) The defaulting borrower who has availed interest waiver must settle at least 15% of the compromise amount (excluding the down payment on rescheduling as per present guidelines) to avail any further credit facility from any Bank. b) In case of borrowing from other Banks, the same rule will be applicable, i.e. the borrower will have to settle at least 15% of compromise amount (excluding the down payment on rescheduling as per present guidelines), then, will be allowed to take regular facility from other Banks subject to the submission of NOC (No Objection Certificate) from the rescheduling bank. c) If there is any Principal waiver, no fresh facility will be allowed till the full settlement of compromise amount d) Export borrowers may be granted further credit facility (after being identified as not a willful defaulter), if required, subject to settle at least 7.5% of the compromise amount (excluding the down payment on rescheduling as per present guidelines) being paid. e) Prior approval of Bangladesh Bank shall have to be obtained if the loan is related to the director/ ex-directors of a Bank Company. ( ** Work flow diagram of Murabaha shown at Annexure III) Accounting Procedure

i)

Example: a. Amount Tk. 100 b. Markup Profit 12% c. Disbursement 16/08/2006 d. Expiry 15/08/2007 Vouchering: Initiation: After receiving request from customer for purchasing goods, the respective officer will pass on following vouchers after verifying all requirements: (1) DR. Murabaha investment A/CTk.100 CR. PO/DD/Link A/C/AWCDTk.100 (Amount debited for purchasing --- units of goods @ Tk. ---) (2) DR. Murabaha Investment A/C Tk.12 CR. Mark up profit payable A/C Tk.12 (Amount debited for profit markup) (3) DR. Murabaha Investment A/C CR. Pay order/Beneficiary’s A/C (Amount debited for storage, insurance, maintenance, etc.)(If required)


ii) End of Each Month : After end of each calendar month profit portion of the respective month to be transferred to income account on daily product basis from markup payable account: DR. Mark up profit payable A/C Tk.1 CR. Income A/C on Murabaha Tk.1 iii) Partial repayment: At the time of partial repayment charges will be recovered first, then profit and then principal. DR. Cash / AWCD/ Link A/C CR. Murabaha Investment A/C (Amount recovered for partial adjustment) iv) Closing before Expiry (6 months 15 days)) : In case of full adjustment before expiry rebate will be given to customer. Profit transfer to income account from markup profit payable account for fraction number of days of the month. Remaining balance of Markup profit payable account to be transferred to respective investment account as rebate. DR. Link A/C/AWCD/Cash Tk.106.50 CR. Murabaha Investment A/C Tk.106.50 DR. Mark up profit payable Tk.5.50 CR. Murabaha Investment A/C Tk.5.50 (Rebate apply) DR. Mark up profit payable Tk.0.50 CR. Income on Bai-Murabaha Tk.0.50 v) Closing on Expiry: In case of full and final adjustment on the expiry date following entries will be passed on. DR. Link A/C/AWCD/CashTk.112 CR. Murabaha Investment A/C Tk. 112 (Amount recovered for full and final adjustment) DR. Mark up profit payable A/C Tk.0.50 CR. Income A/C on Murabaha Tk.0.50 (Profit transfer to income account from markup profit payable account for fraction number of days of the month which results balance of markup profit payable account nil) vi) After Expiry (after expiry to DF classification): Balance amount of Markup profit payable account (if any) to be transferred to income account on expiry after COB. Compensation to be charged in investment account at the same rate on principal outstanding. **Additional fees for monitoring and recovery may be applied in lump sum or percentage. Compensation to be charged at the end of each month as under: DR. Bai Murabaha Investment A/C CR. Compensation suspense A/C (Compensation to be calculated and charged on daily product basis) vii) Closing after expiry (Full at a time): At the time of adjustment sales price, compensation amount and additional fees (if any) to be realized from the customer. DR. Bai Murabaha Investment A/C CR. Compensation suspense A/C DR. Link A/C/AWCD/Cash CR. Bai Murabaha Investment A/C


DR. Compensation suspense A/C (Accumulated full balance) CR. Compensation realized A/C (To be expense for charitable purpose) Special Accounting for BL classification: 0. When loan become BL (past due for 12 months or beyond) -in this case profit charge will be stopped. But Calculated profit will be kept in a table/Ledger for future claim to recover from customer or for use in law Suit. Maintaining of stock register The stock should be maintained as per customer wise then godown wise then item (Goods) wise stock position . At the time of issuing purchase order following additional fields to be added. • Godown no • Commodity id At the time of issuing delivery order the following fields to be added • Godown no • Commodity id • Delivery order no • Delivery date • Quantity • Rate (different rate) • Amount • Payment amount ( Amount-Margin) Export Import Bank of Bangladesh Limited Motijheel Branch STOCK & D.P. REGISTER NAME ----------------------------------------------------------------------------------------------------------------------------Phone -----------------------------------------------------Address ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------Limit Taka --------------------------------- Validity ----------------------------------------------------------------------- Godown No. ---------------------------

Margin

Amount of Insurance Tk. ---------------------------------------------------------------------------------------------------------------------------------------------------------

Validity

Date

Particular s of Goods

In Rate Quantity Valu per e Unit

1

2

3

4

5

Out Quantity Valu e 6

7

D/O Balance No. Quantity Valu & e Date 8 9 10

Amount of Margin 11

Drawing Power 12(1011)


Delivery Order Godown No. Description Goods

of Delivery No

Order Quantity

Rate

Value

Payment amount

Bai-Murabaha (TR) Investment allowed for retirement of shipping documents and release of goods imported through L/C falls under this head. The goods are handed over to the importer under trust with the arrangement that the sale proceeds should be deposited to liquidate the investments within a given period. This is also a temporary investment connected with imports and known as post Import Finance and falls under the category “Commercial Lending�. Import documents lodged under Murabaha Import Bills may be delivered under TR with or without Duty, VAT & Taxes etc. under one single deal on obtaining Head Office approval. While allowing TR facilities collateral security by way of registered mortgage of property with RIPA is to be obtained. As per principle of buying & selling profit markup is to be charged for 365 days while making lodgment of import documents under Murabaha Import Bill (MIB). In this connection the accounting procedure is as follows : For Lodgment Dr. MIB Cr. Head Office General Account Dr. MIB Account (being the amount of profit for 365 days including the amount of Duty, Taxes etc. if to be paid) Dr. Profit Payable Account (Inv.)-MIB While making payment of Duty, Sale Tax, VAT etc. the following entries may be passed. Dr. MIB (being the amount of Duty, Sale Tax, VAT etc.) Cr. Pay Order Account/General Account-Head Office (being Duty, Sale Tax, VAT etc. favouring Commissioner of Customs). Thereafter if documents are to be delivered under TR the following entries may be passed. Dr. MTR Account (being the entire amount of outstanding Murabaha Import Bill Account) Cr. MIB Account (being the a/o cash security)


Cr. MIB Account (buy of TR assets) Dr. Profit Payable Account (Investment MIB) (Being the amount of outstanding in profit payable regarding MIB). Cr. Profit Payable Account Investment (being the amount of profit payable in respect of TR). Proper stock register as per B-................... is to be maintained deal wise for each TR. On adjustment payment of TR amount the account is to be adjusted accordingly and rebate for early settlement to the Dr. of Profit Payable Account (Investment TR) and Cr. to MTR Account may be allowed. On the other hand if the TR outstanding amount is not paid in due time compensation as per calculated rate of profit is to be debited to TR Account and credited to Compensation Realizable Account. As and when compensation is paid after adjustment of principal amount and profitable amount. Compensation Realizable Account is to be debited to the credited of Compensation Realized Account. Procedure of Import Documents Lodged under one deal including MPI/TR facilities: As a matter of Shariah Principle, Branches conducting Islami Banking shall have to follow the following accounting procedures while lodgment of import documents till its retirement under one deal systems of charging profit. For detailing procedures of accounting principle in different stage, the value of import document has been presumed to be Tk.1.00 lac and profit thereon for the whole year i.e. 365 days has been assumed Tk.19,992.00 including Duty, Sales Tax, VAT etc. It may be pointed out while lodgment of MIB, the net landed cost thereon shall have to be calculated and profit markup thereon shall have to be accounted for accordingly. Lodgment stage Dr. MIB

= Tk.1,00,000.00

Dr. MIB (being profit)

= Tk.19,992.00 (including Profit of Duty, Sales Tax, VAT etc.)

Cr. Head Office

= Tk.1,00,000.00

Cr. Profit Payable MIB

= Tk.19,992.0

In case the document is retired say after 30 days Dr. Profit Payable MIB Cr. Income A/C Profit MIB

= Tk.1,666.00 = Tk.1,666.00

Dr. Cash/CD A/C/Cash Security A/C) = Tk.1,01,666.00 (Including profit of 30 days) Cr. MIB A/C

= Tk.1,01,666.00 (including profit payable for 30 days)


Dr. Profit Payable MIB (being rebate) = Tk.18,326.00 Cr. MIB A/C (being rebate)

= Tk.18,326.00

If certain amount is paid for adjustment in MIB Dr. Cash / CD A/C say Cr. MIB

= Tk.10,000.00 = Tk.10,000.00 (Principal amount to be adjusted)

If subsequently applied for allowing MPI Dr. MPI Dr. MPI

= Tk.90,000.00 (entire principal outstanding) Say = Tk.30,000.00 (being Duty, VAT etc.)

Cr. PO/Responding of IBDA of Agrabad Branch) TR

= Tk.30,000.00

Dr. MPI (being profit)

= Tk.19,992.00

Cr. MIB

= Tk.90,000.00

Cr. MIB (being profit)

= Tk.19,992.00

Dr. Profit Payable MIB

= Tk.19,992.00 (entire profit payable outstanding)

Cr. Profit Payable MPI

= Tk.19,992.00

In case of MPI, Duty VAT etc. to be debited. But further mark up profit shall not be debited as the same has been included while debiting mark up profit at the first instance i.e. at the time of debiting profit in MIB stage. Incase MPI adjusted after 60 days Dr. Cash CD A/C Cr. MPI

= Tk...........(Principal outstanding & profit for 60 days) = Tk.......... (Principal outstanding & profit for 60 days)

Dr. Profit Payable A/C MPI

= Tk.3,332.00 (Profit for 60 days)

Cr. Income A/C MPI

= Tk.3,332.00

Dr. Profit Payable Cr. MPI

= Tk................ (outstanding amount) = Tk................ (Similar amount being rebate)


In case MPI remains outstanding, product of outstanding is to be calculated & accordingly profit to be charged at the calculated rate & credit to income A/C. Dr. Profit payable A/C = Tk...........(As per product of outstanding at calculated rule) Cr. Income A/C MPI

= Tk .............

In case the investment remains outstanding after due date compensation shall be charged at the calculated rate of Return to the debit of relative investment A/C & the same shall be credited to Compensation Realizable A/C. Upon realization of Compensation Realizable amount, the same shall be transferred to Compensation Realized Account. The entire balance of Compensation Realized A/C shall be transferred to FAD as at the end of each year. The procedure is to be followed strictly. Murabaha/Murabaha Post Import Investment Goods Delivered Against Trust Receipt (TR) Sometimes it is required to release Murabaha/Murabaha Post Import Investment Goods of Considerable amount under Trust Receipt (TR). In order to have a transparency in this regard as well as to ensure uniform practices, the following procedures may be observed while making delivery of Murabaha Investment Goods/Murabaha Post Import (MPI) Investment Goods under T.R.: • Trust Receipt (C.F.-II) with adhesive stamp of proper value & duly signed by the client must be obtained for each deal. • As per sanction term delivery of Murabaha Investment goods against T.R. is to be made proportionately with the outstanding in Murabaha/MPI Investment A/C instead of allowing delivery of Murabaha/MPI Investment stock for total amount of T.R. facility irrespective of outstanding in Murabaha/MPI Investment A/C. For example, a Murabaha limit of Tk. 1.00 Lac is allowed including T.R. facilities of Tk. 10,000/- and Tk. 50,000/is disbursed under Murabaha. In the above case goods under Trust Receipts shall be delivered for Tk. 5,000/- i.e. proportionate to investment instead of total T.R. limit of Tk. 10,000/- sanctioned. • Nevertheless T.R. facilities may also to be allowed for a maximum period up to 120 days on obtaining written request from the client. The period of T.R. shall, however, vary depending on the nature and quality etc. of goods within the maximum period of 120 days or as per terms of sanction advice. • Cheque for payment of blue of goods delivered against T.R. shall have to be obtained from the client in the name of the Bank towards adjustment of Investment Account of the party & the same shall have to be presented on the due date. In case of return of cheque proper action shall have to be taken in consultation with Head Office. • Delivery order for the goods to be delivered against T.R. shall have to be issued duly marked DELIVERED UNDER T.R. and duly signed by the Branch Manager along with authorised person shall also be obtained on the of back of Delivery order as a token of having received the goods. • As per terms of Trust Receipts the client is to hold the goods delivered against T.R. as Agent/Trustee of the Bank. The client can, however, dispose of the goods and in such


•

• •

case the client is bound to deposit the sale proceeds of the said goods in the respective investment account. In case the goods are not found available are not deposited as stated above, it will tantamount to misappropriation and he will be liable for criminal breach of trust. As such branches must ensure that goods released against T.R. is either physically available to the concerned client or the sale proceeds thereof has been deposited in the respective investment account. Otherwise they shall immediately bring it to the knowledge of Head Office for appropriate action. T.R. A/C (Murabaha/MPI Investment) shall be opened suitably deal wise wherein Murabaha/MPI TR Investment allowed shall be recorded. Goods delivered shall also be recorded in a suitable register under the initial of Godown Officials, Manager and Investment Officer jointly. Voucher, however, shall be passed in this regard and for obvious reasons no profit shall be charged in the relative investment account since profit has been charge where allowing Murabaha/MPI TR Investment. Accordingly when the sale proceeds of Murabaha/MPI TR Investment is repaid the same is to be credited to relative TR investment account. Records of Murabaha Investment goods delivered against T.R. shall be maintained properly in the stock and Delivery Register (B-35). Outstanding dues of Investment facilities allowed against T.R. must be shown in the Statement of Affairs/Murabaha/MPI TR Investment against relative account.

5.4.2 Bai Muazzal Definition : It is a mode of Investment wherein buyer and seller engage themselves in a contract of buying and selling of Shariah permissible goods at a price payable in future determinable date in lump sum or fixed installment taking delivery of the goods at the time of contract, In this mode the goods are delivered in advance and the fixed price is paid later or as agreed by the parties.. Features : A. Shariah permissible goods are to be purchased from third party by the bank B. Stock and availability of goods is a basic condition C. An offer of customer to buy a specified goods by the bank and commitment of the said customer to buy the same goods i.e. confirmation of buying and selling at a price cost plus agreed upon profit D. Price verification by bank officials E. Bank may engage buying agent on his behalf to procure goods. Engaging a buying agent is mandatory to comply Islamic Shariah. F. Goods must be purchased as per specification of customer G. Bank official must verify the condition of goods physically after purchasing of goods by the buying agent. H. After purchasing of goods the bank must bear the risk of goods until those are actually sold and deliver to customer. I. Ownership of goods by the bank must be established for at least one moment of time. J. It is a investment sale mechanism in which possession and ownership of goods is transferred at the time of contract and payment will be made on deferred basis by installment or at a time


K. Profit markup to be made L. Bank is not bound to declare cost and markup profit separately M. Commission, transportation, TA/DA to be borne by the bank in case of purchasing the same by the bank and to be loaded with cost price to setup profit N. Price once fixed cannot be changed O. The profit can be lump sum or in percentage of the cost/ purchase price. But under no circumstances the percentage of the profit shall have any relation with time or expressed in relation with time, such as per month, per annum etc. P. Cash/collateral security may be taken to indemnify loss or damage prior to signing the agreement or at the time of signing agreement Q. Rebate will be applicable in case of early or prepayment. R. Compensation will be charged if repayment is made after the expiry. Special Feature for Bai Muazzal Account : • A link account called Bai Muazzal Special Deposit Account to be maintained for every customer for transaction purpose. • No profit will be given in the said link account (nature of AWCD). • At the time of profit calculation on day to day basis in Bai Muazzal account , the balance of link account to be deducted from Bai-Muazzal Account. Engaging Investment Client As Buying Agent For Purchase of Bai-Muazzal Goods: There is an apprehension that if the investment client is engaged as buying agent that might lead to buy-back system which is incompatible with shariah principle. In spite of above Shariah Council in its 8th Meeting held on 16.11.2003 has approved buying of Bai-Muazzal goods on engaging investment client as Buying Agent on observing the following formalities strictly: • •

• • •

The client will first submit indent/invoice of the goods which is intended to be purchased detailing therein description, quality, quantity, design and price. The Bank will examine the indent/invoice and verify the price from the market, marketability of the goods and shall sanction Bai-Muazzal investment limit in favor of the client on complying necessary procedures detailed in the investment manual as well as circulars issued time to time. The Bank wills than engage the client as its Buying Agent to buy/purchase the goods from the market on behalf of the Bank as per specification submitted by him to the Bank. In order to engage the client as buying agent an agreement as per appendix (A) shall be obtained along with other charge forms and documents. The buying agent shall have to indemnify the bank as per appendix (A) in respect of loss in transit since transit insurance shall usually not be obtained by the client due to additional cost involved. The Bank will then make payment of the value of the goods to the Buying Agent by Cash/P.O/D.D as the case may be to the debit of investment account to be opened in the investment ledger in the name of the investment client as well as obtain necessary charge forms executed and documents commensuration with the mode of investment to the client


• •

After procurement of goods as per specification in the invoice/indent and after safe transportation of the same, the possession of the goods shall be delivered to the Bank. The Bank on obtaining possession at least for a moment & being satisfied with the quality, quantity, design and other specification of the goods, will deliver the goods to the client after proper acknowledgement in the purchase schedule. In no circumstance, the Buying Agent shall purchase the goods from himself/goods owned by him. Bank officials must ensure it. If any official is found negligent in this regard, suitable action shall be taken against him. Similarly in case of Baim-investment charge forms and mortgage documents must be obtained duly executed before engaging him as Buying Agent and making payment of cost of goods to be purchased. In case any Buying Agent does not deliver the possession of the goods as mentioned above criminal legal action followed by civil legal action shall be taken immediately under intimation to Head Office and such client shall not be allowed any facility in future. With the engagement of client as Buying Agent, the Bank will be relieved of the risk of carrying cash for purchase of goods as well as carrying goods from markets.

Insurance: • • • • •

Obtain Insurance policy equal to the sale price of the goods (excluding Insurance premium) plus ten percent covering all usual risks including FIRE & RSD with Bank's mortgage clause. Premium of Insurance Policy to be taken shall be paid by the client. Insurance policy shall be obtained either from Sadharan Bima Corporation or from Insurance Company on Bank's approved list. Insurance Policy/Cover Note and periodical premium receipt shall be kept in respective clients file. On receipt of the policy from the Insurance Company, check it up to ensure that it has been issued for the amount and with the warranty desired by the Bank and also the policy is duly stamped. Enter the policy in the Insurance Policy Register B-57 and preserve it in a fire proof Safe/Almirah under joint custody of the Incumbent-in-charge of the branch & the Officer-incharge of the investment department. If any accident occurs, the client will be advised to lodge claim through the Bank with the concerned Insurance Company, duly complying with all formalities within the stipulated time.

In case, the client do not take insurance, Bank do it on behalf of the client by debit to the respective Investment account with intimation to the client. Commission if any received from the Insurance Company must be credited to the respective investment account. Induction Of Client: •

Request potential client to open a Current Account. Let him maintain the Current Account satisfactorily for a reasonable period.


• •

Hold preliminary discussion with the prospective client regarding his investment needs and business experience and be sure that he has shop/showrooms and he is a trader of the particular item for which investment is being sought. See at the past performance of the client. Check up Head Office current investment policy and Branch's record to Bai-Muajjal Investment. If the proposal is found suitable, ask the client to submit a formal application. If not, regret politely.

Types of Bai-Muajjal Investments followed By Exim Bank Ltd. • Bai Muazzal (CCH) • Bai Muazzal (WO) • Bai Muazzal (FO) • Bai Muazzal (PC) • Bai Muazzal (Export) • Bai Muazzal (Import/TR) • Bai Muazzal (Share) • Bai Muazzal (Agri) • Bai Muazzal (General/Others) Step –1: Approval process • • • •

The investment proposal is forwarded to HO HO investment committee analyze the proposal If positive, sanction advice send to Branch If negative, declined message send to branch

• • •

Branch receives approval letter Certain terms and conditions Branch advices the Sanction letter to customer

Fulfillment of terms and conditions by the customer o Acceptance of sanction advice by the customer o Personal guarantee(if any) o Charge documents  DP note(single and joint)  Letter of hypothecation  Letter of disbursement  Letter of continuity  Letter of arrangement  Letter of disclaimer  Balance confirmation  DP note delivery letter  DP note revival letter  Purchase schedule

Step-2: Approval advice

Step-3: Documentation


o

o

 Bai-Muazzal agreement  Buying agent agreement Security document (If Investment is backed by collateral security)  Following original documents to be vetted for genuineness by the enlisted legal advisor • Original Title Deed • Mutation Parcha with DCR • Rent receipt • CS/SA/RS/Mahanagar Parcha • Bia deeds • NEC • Approval from respective statutory authority • Others  RM with RIPA supported by letter of satisfaction by enlisted lawyer.  Insurance on Limit amount of Investments goods from enlisted insurance company of the Bank. CIB and CRG report

Step-4 : Preparation of Checklist • Preparation of Checklist for disbursement permission from Head Office o Acceptance o Charge documents o Security documents o Shariah permissible goods o CIB report o CRG o Certificate from Department of Environment o Certificate from Department of Fire Service & Civil Defence o Certificate from Department for Inspection of Factories o Others Step-5 : Disbursement authorization • Branch seek disbursement authorization from Head Office complying terms and conditions • Head office verifies the checklist with sanctioned terms and condition • If comply with terms & condition then give permission for disbursement Step-6 : Disbursement Process • Branch receive the disbursement permission from Head Office • Branch receive request for purchasing goods from customer


• • • • •

Branch purchase specified goods directly or through buying agent by creating Bai-Muazzal Account. Payment will be made by PO/DD/AWCD/Link A/C Release of markup profit After signing Bai-Muazzal agreement by the customer, branch handover goods to customer Others

Step-7 : Follow-up and Supervision • Periodical visit by investment officer/In charge • Reminder sent to customer before expiry of deal (MIS) • Others Step-8 : Recovery and adjustment • Partial adjustment is allowed • If full adjustment before expiry, rebate will be given to customer • If partial adjustment before expiry and final adjustment on expiry, rebate will be given to customer • If partial adjustment before expiry but final adjustment after expiry rebate will not be given to customer • If unadjusted within expiry, compensation will be charged from the day after expiry till adjustment Step-9: Classification & Provisioning Basis of Investment Classification: A) Objective Past Due / Overdue Categories Continuous Investment

Day of Past Due/ Overdue start Following the day of expiry date, if unpaid

Amount of Past Due/Overdue Balance Amount

Standard: All Unclassified Investment other than SMA Special Mention Account (SMA): A Continuous Investment which will remain overdue for a period of 90 days or more. Sub-standard, Doubtful and Bad/Loss-Continuous Classification Sub-standard(SS) Doubtful(DF)

Criteria Past Due/ Overdue for 6 months or above but not over 9 months Past Due/ Overdue for 9 months or above but not over 12 months


Bad/Loss(BL)

Past Due/ Overdue for 12 months or above

B) Qualitative Judgment: As per Head Office or management discretion Accounting of Profit of classified Investment: • Any investment classified as SMA, Sub-standard or Doubtful, profit accrued on such investment account will be credited to profit/compensation suspense account instead of crediting the same to income account. • Any investment classified as ‘Bad/Loss’, charging of profit in the same account will be ceased. But to be calculated in a separate sheet so that the uncharged profit/compensation can be obtained at any time or at the time of filing a law- suit. Maintenance of Provision: C) General Provision Types All unclassified investment (other than Small Enterprise, Consumer Financing and Special Mention Account) Unclassified investment for Small Enterprise Financing Unclassified investment for Consumer Financing -Housing Finance -Loans for Professional to set up business -Other than above two Special Mention Account* Off-balance Sheet Exposure

Percentage provision @1%

of

@2% @2% @2% @5% @5% @1%

*Profit on suspense to be deducted from investment amount D) (i)Provision on Classified Continuous Investment: Types Sub- Standard Doubtful Bad /Loss

Percentage provision @ 20 % @ 50 % @ 100 %

Based for provision: Provision will be maintained at the above rate on the balance to be ascertained by deducting the amount of Profit Suspense and value of Eligible Securities from the outstanding balance of classified accounts. Eligible Securities: In the definition of Eligible Securities as mentioned in the above paragraph the following securities will be included as eligible securities in determining base for provision. -100% of deposit under lien against the loan -100% of the value of government bond/savings certificate under lien -100% of the value of guarantee given by Government or Bangladesh Bank

of


-100% of the market value of Gold or Gold ornaments pledged with the Bank -50% of the market value of easily marketable commodities kept under control of the bank. -Maximum 50% of the market value of land and building mortgaged with the bank -50% of the average market value for last 06 months or 50% of the face value, whichever is less, of the shares traded in stock exchange. Step –10 : Rescheduling : When a classified account is rescheduled then the classification status will be changed in to unclassified (Standard) account. In case of rescheduling down payment should be as follows: Seria

Amount

of e x pi re d lo a n

Amount of Down payment

1

Up to 1 crore

15% on outstanding

2

1crore to 5 crore

10% but not less than TK. 15 Lac.

3

5 crore and above

5% but not less than TK. 50 Lac

Exception : No down payment is required for rescheduling investment accounts of Readymade Garments which became stuck-up due to real stock lot (present & past) with a condition that the sale proceeds of stock lot goods to be credited to respective invest account. Restrictions after reschedule: After reschedule (if any) the customer will get new facility subject to fulfillment of conditions

following

a) The defaulting borrower who has availed interest waiver must settle at least 15% of the compromise amount (excluding the down payment on rescheduling as per present guidelines) to avail any further credit facility from any Bank. b) In case of borrowing from other Banks, the same rule will be applicable, i.e. the borrower will have to settle at least 15% of compromise amount (excluding the down payment on rescheduling as per present guidelines), then, will be allowed to take regular facility from other Banks subject to the submission of NOC (No Objection Certificate) from the rescheduling bank.


c) If there is any Principal waiver, no fresh facility will be allowed till the full settlement of compromise amount d) Export borrowers may be granted further credit facility (after being identified as not a willful defaulter), if required, subject to settle at least 7.5% of the compromise amount (excluding the down payment on rescheduling as per present guidelines) being paid. e) Prior approval of Bangladesh Bank shall have to be obtained if the loan is related to the director/ ex-directors of a Bank Company.

(** Work flow diagram of Bai-Muajjal shown at Annexure III) Accounting Procedure Example: a. Amount Tk. 100 b. Markup Profit 12% c. Disbursement 16/08/2006 d. Expiry 15/08/2007 Vouchering: iii) Initiation: After receiving request from customer for purchasing goods, the respective officer will pass on following vouchers after verifying all requirements: (1) DR. Bai-Muajjal investment A/CTk.100 CR. PO/DD/Link A/C/AWCDTk.100 (Amount debited for purchasing --- units of goods @ Tk. ---) (2) DR. Bai-Muajjal Investment A/C Tk.12 CR. Mark up profit payable A/C Tk.12 (Amount debited for profit markup) (3) DR. Bai-Muajjal Investment A/C CR. Pay order/Beneficiary’s A/C (Amount debited for storage, insurance, maintenance, etc.)(If required) iv) End of Each Month : After end of each calendar month profit portion of the respective month to be transferred to income account on daily product basis from markup payable account: DR. Mark up profit payable A/C Tk.1 CR. Income A/C on Bai-Muajjal Tk.1 iii) Partial repayment: At the time of partial repayment charges will be recovered first, then profit and then principal. DR. Cash / AWCD/ Link A/C CR. Bai-Muajjal Investment A/C (Amount recovered for partial adjustment)


iv) Closing before Expiry (6 months 15 days) : In case of full adjustment before expiry rebate will be given to customer. Profit transfer to income account from markup profit payable account for fraction number of days of the month. Remaining balance of Markup profit payable account to be transferred to respective investment account as rebate. DR. Link A/C/AWCD/Cash Tk.106.50 CR. Bai-Muajjal Investment A/C Tk.106.50 DR. Mark up profit payable Tk.5.50 CR. Bai-Muajjal Investment A/C Tk.5.50 (Rebate apply) DR. Mark up profit payable Tk.0.50 CR. Income on Bai-Muajjal Tk.0.50 (Profit transfer to income account from markup profit payable account for fraction number of days of the month which results balance of markup profit payable account nil) v) Closing on Expiry: In case of full and final adjustment on the expiry date following entries will be passed on. DR. Link A/C/AWCD/CashTk.112 CR. Bai-Muajjal Investment A/C Tk. 112 (Amount recovered for full and final adjustment) DR. Mark up profit payable A/C Tk.0.50 CR. Income A/C on Bai-Muajjal Tk.0.50 (Profit transfer to income account from markup profit payable account for fraction number of days of the month which results balance of markup profit payable account nil) vi) After Expiry (after expiry to DF classification): Balance amount of Markup profit payable account (if any) to be transferred to income account on expiry after COB. Compensation to be charged in investment account at the same rate on principal outstanding. **Additional fees for monitoring and recovery may be applied in lump sum or percentage. Compensation to be charged at the end of each month as under: DR. Bai-Muajjal Investment A/C CR. Compensation suspense A/C (Compensation to be calculated and charged on daily product basis) vii) Closing after expiry (Full at a time): At the time of adjustment sales price, compensation amount and additional fees (if any) to be realized from the customer. DR. Bai-Muajjal Investment A/C CR. Compensation suspense A/C DR. Link A/C/AWCD/Cash CR. Bai-Muajjal Investment A/C


DR. Compensation suspense A/C (Accumulated full balance) CR. Compensation realized A/C (To be expense for charitable purpose)

Special Accounting for BL classification: 1. When loan become BL (past due for 12 months or beyond) -in this case profit charge will be stopped. But Calculated profit will be kept in a table/Ledger for future claim to recover from customer or for use in law Suit.

Bai-Muazzal ( Work Order ) Investment allowed against assignment of work order for execution of contractual work falls under this head. Thjis investment generally allowed for a definite period and specific pupose i.e it is not a continuous investment. Features,accounting,classification and provisioning are same as Bai muajjal(Hypo). Additional Requirement: When a WO received by bank from customer the bank ensures the confirmation of WO and physical varification is made for work under process. The following informations are to be inputted for issuance of a letter for obtaining consent of assignment from the concerned authority. • Customer ID. • WO ID • Name of work order awarding authority • Address of awarding authority • Name of Work • Reference No. of work order • Date of issue of WO • Value of WO • Expiry of WO • Net value of WO • Margin • Drawing power(DP)(WO Value-Margin) At the time of creation of several LD contracts against one WO ,following additional fields to be incorporated in issuing purchase order • WO ID • At the time of inputting LD amt. , the sum of the LD amount should not exceed DP. After partial completion of the WO and receipt of running bill, the following fields to be added. • Customer ID


• • • • • •

Sl No

WO value

Net Value

WO ID Amount of work done Amount of work undone Bill submitted for collection. Bill received Bill outstanding

DP

Work Order Performance Report Disbursement Work Work Bills with date Done undone received with date

Bill outstandin g

Amount Adjuste d

LD Outstandin g

Bai-Muazzal (General/FO) Investment allowed to individual/firms against financial organization [i.e Lien on MTDR (term deposit receipt)/PSP/BSP/ Insurance Policy/ Share etc.] This is not a continuous investment. Features,accounting,classification and provisioning are same as Bai muajjal(Hypo). Additional Requirement:( financial obligation to be kept as collateral) • In case of instrument of our Bank Lien option should be available with our Investment A/C. Generation of confirmation (MIS). • In case of instrument of other Bank following fields need to be inputted in collateral: i) Name of issuing bank with branch. ii) Name of instrument holder iii) Instrument number iv) Date of issue v) Value of instrument vi) Expiry date Bai-Muazzal (Export) Investment allowed for purchasing foreign currency for payment against L/Cs (Bank to Bank) where the exports do not materialize before the date of import payment . This is also an investment for temporary period,which is known as export finance and falls under the category ‘’commercial Lending.’’ Accounting,classification and provisioning are same as Bai muajjal(Hypo). Additional Requirement: • Export LC/ Contract value • Shipment status


• • • • • •

-Expired - Document under collection. -Not Expired (In case of BTB sight) Shipment validity extension Export LC/Contract replacement BTB L/C no. and value ABP value & due date. Goods status with value Adjustment schedule - From related export proceeds - From other source

Bai-Muazzal (PC) Investment allowed to a customer against specific L/c firm contract for processing / packaging of goods to be exported falls under this head and in accordance of Bai-Muazzal principle, termed as Bai-Muazzal (Packing Credit). This head can also be fall under “Musharaka Pre- Shipment” principle of Islamic investment. This investment must be adjusted from proceeds of the relevant exports within 180 days. It falls under the category “Investment on Export” Accounting,classification and provisioning are same as Bai muajjal(Hypo). Additional Requirement:(following field to be added at the time of issuing purchase order) • Export L/C no.& value • PC entitlement.(although having 10% entitlement on ELC value PC will be provided in relation with the BTB L/C entitlement.) • Shipment date. • BTB L/C value in FC • ABP value in FC.

Bai-Muazzal (Share) Features,accounting,classification and provisioning are same as Bai muajjal(Hypo). Additional Requirement:( Shares to be kept as collateral) • Name of the share issuance company • Number of shares • Face value of share • Name of owner • Present value with date • Average value of last six months • Name and address of Depository participant


The operational activities are almost same as above for Bai Muazzal (Agri) & Bai Muazzal (General/Others) 5.4.3 Izara Bill Bia Definition: Izara Bill Bia is a mode of investment under which the Bank as per contract shall invest for purchasing durable assets like Machinery, Equipment, Transport, Land & Building etc. along with the client with the stipulation that the client shall pay off the rent at the agreed rate on the outstanding equity of the bank together with the installments of principal amount of equity of the Bank for the purpose of eventual ownership of the concerned asset. Features : 1.

2. 3. 4. 5.

6.

7.

The Islamic Shariah principle of investment under Izara Bill Bia is Musharaka Mutanakasha which means the rent shall be devisable as per equity involved, unpaid rent if any shall not be treated as equity and the asset shall be acquired on participation ownership. Possession of the asset shall be passed on to the client for use as per practicability. Bank shall retain the ownership till payment of equity portion of the Bank along with rental. The ownership of the asset shall gradually pass on to the client upon payment of Bank's equity involved and on the reverse upon increase of client's equity. Profit shall not be compounded in any case i.e. no rent shall be charged on unpaid/outstanding rent. Incidence of rent shall be reduced proportionately with the reduction of equity of the Bank on payment of installment by the client. Since it is a kind of Musharaka, cash can be paid to the credit of clients account. However, the purpose for which cash is disbursed must be ensured from the point of Banking In case of need the equity portion may be increased or decreased by making lump sum payment by either side. Very often the client may require funds to run the equipments/machineries for short period as working capital which may be paid to the debit of respective Izara Bill Bia Account if found feasible and covered by the value of assets.

Types: Izara Bil Baia/Hire Purchase Izara Bil Baia (Commercial) -First Principal Realization Izara Bil Baia (Machinery) Izara Bil Baia (HB) Izara Bil Baia (Transport) Izara Bil Baia (NBFI) Izara Bil Baia (Syndication) Izara Bil Baia (Commitment)


Izara Bil Baia (Others-Smart saver Deposit scheme) Izara Bil Baia (Commercial) -First Profit Realization Izara Bil Baia (Others) Izara Bil Baia (Staff) -First Principal Realization Izara Bil Baia (Executive Car Scheme) Izara Bil Baia (Staff HB) Izara Bil Baia (EIS) Izara Bil Baia (Others)

Step by step process for Izara Bill Bia

Head office process the proposal and conveys their decision to the branch/EC approval to the branch

Branch receives the approval and advice the same to the customer

Documentation and other formalities to be completed by the branch

Request head office investment administration division for obtaining disbursement authority. Head Office verify the checklist and give permission for disbursement by loading the Limit in the system Disbursement authorization received by the branch & make disbursement as per Client request

Follow up and supervision

Recovery and adjustment Step –1: Approval process • The investment proposal is forwarded to HO • HO investment committee analyze the proposal • If positive, sanction advice send to Branch • If negative, declined message send to branch Step-2 :Approval advice • If positive, Branch receives approval letter with certain terms and condition from HO


• • •

Branch may set additional terms and conditions, if any. Branch advices the Sanction letter to customer If negative, Branch receives decline letter from HO and then • Review/Reconsider the proposal • Decline letter issued to the customer

Step-3 :Documentation • Fulfillment of terms and conditions by the customer o Acceptance of sanction advice by the customer o Personal guarantee (if any) o Charge documents  DP note (single and joint)  Letter of disbursement  Letter of installment  Letter of arrangement  Cash memo in the name of bank  Balance confirmation  Purchase schedule  Izara Bill Bia agreement  Supplementary IBB agreement  Any other documents as per sanction terms o Security document (If Investment is backed by collateral security)  Following original documents to be vetted for genuineness by the enlisted panel lawyer • Original Title Deed • Mutation Parcha with DCR • Rent receipt, Municipal Holding tax receipt • CS/SA/RS/BS latest math Jarip • Via deeds • NEC • Approval / NOC from respective statutory authority • Location map or site plan • Others  RM with RIPA supported by letter of satisfaction by enlisted lawyer.  Insurance on Limit amount of Investments goods from enlisted insurance company of the Bank. • The asset shall be kept insured to the extent of its book value plus (+) ten percent covering all risks including FIRE, RSD, RCC in the joint name of the Bank. The condition of obtain of insurance policy may, however, be waived for the assets representation consumer durables with prior permission of Head Office. • Insurance policy shall be obtained either form Sadharan Bima Corporation or form Insurance Company of Bank's approved list. • On receipt of the policy form the Insurance Company, check it up to ensure that it has been issued for the amount and with the warranties desired by the Bank and also the policy is duly stamped. • If any accident occurs, arrangement shall be made to lodge claim with the concerned Insurance Company, duly complying with all formalities within the stipulated time. o o INSURANCE:

CIB and CRG report NOC from other Bank/NBFI where customer has liability


Step-4: Preparation of Checklist b) Preparation of Checklist for disbursement permission from Head Office • Acceptance • Charge documents • Security documents • CIB report • CRG • Certificate from Department of Environment, if needed. • Certificate from Department of Fire Service & Civil Defense • Certificate from Department for Inspection of Factories • Others Step-5 : Disbursement authorization • Head office receives disbursement authorization request from branch complying terms and conditions • Head office verifies the checklist with sanctioned terms and condition • If comply with terms & condition HO provide disbursement authority by loading limit in the system • Disbursement authorization in case of deferral issues • If not, refer the same to branch for fulfillment of lapses Step-6 : Disbursement Process • Branch receive the disbursement permission from Head Office • Branch receive request for purchasing asset from customer • Payment will be made by • PO/DD to the supplier • AWCD of the customer • Retirement of import bills • Disbursement may be made phase by phase • Calculation of rent / Installment • First profit realization • First principal realization • Others Step-7 : Follow-up and Supervision • Periodical visit by investment officer/In charge • Preparation of various report for effective monitoring • Reminder sent to customer for repayment of installment regularly • Reminder sent to customer for repayment of overdue installment • Others Step-8 : Recovery and adjustment • Adjustment by predetermined installments • Adjustment by partial installment is allowed Step-9: Provisioning and classification Categories of Fixed Term Investment a. Repayable within maximum five years of time b. Repayable in more than five years of time Basis of Investment Classification:


A)

Objective

Past Due / Overdue Categories

Day of Past Due/ Overdue start

Fixed Term Investment (not over five years) Fixed Term Investment (over five years)

Following the day of fixed expiry date or Due date of installment, if unpaid After six months of the expiry date of installment, if unpaid

Amount of Past Due/Overdue Amount of unpaid Installment Amount of unpaid Installment

Standard: All Unclassified Investment other than SMA Special Mention Account (SMA): A Fixed Term Investment, which will remain overdue for a period of 90 days or more. Sub-standard, Doubtful and Bad/Loss- Fixed Term Investment (not over five years) Classification Sub-standard Doubtful Bad/Loss

Criteria ‘Defaulted Installment’** is equal to or more than the amount of installment(s) due within 6 months. ‘Defaulted Installment’ is equal to or more than the amount of installment(s) due within 12 months. ‘Defaulted Installment’ is equal to or more than the amount of installment(s) due within 18 months.

** Defaulted Installment: In case of any installment(s) or part of installment of a Fixed Term Investment is not repaid within the due date, the amount of unpaid installment(s) will be termed as ‘Defaulted Installment’. Sub-standard, Doubtful and Bad/Loss- Fixed Term Investment (over five years) Classification Sub-standard Doubtful Bad/Loss

Criteria ‘Defaulted Installment’ is equal to or more than the amount of installment(s) due within 12 months. ‘Defaulted Installment’ is equal to or more than the amount of installment(s) due within 18 months. ‘Defaulted Installment’ is equal to or more than the amount of installment(s) due within 24 months.

B) Qualitative Judgment : As per Head Office or management discretion Accounting of Profit of classified Investment: • Any investment classified as SMA, Sub-standard or Doubtful, profit accrued on such investment account will be credited to profit suspense account instead of crediting the same to income account. • Any investment classified as ‘Bad/Loss’, charging of profit in the same account will be ceased. But to be calculated in a separate sheet so that the uncharged profit can be obtained at any time or at the time of filing a law- suit. Maintenance of Provision: Types

Percentage

of


All unclassified investment (other than Small Enterprise, Consumer Financing and Special Mention Account) Unclassified investment for Small Enterprise Financing Unclassified investment for Consumer Financing -Housing Finance -Loans for Professional to set up business -Other than above two Special Mention Account* Off-balance Sheet Exposure

provision @1% @2% @2% @2% @5% @5% @1%

*Profit on suspense to be deducted from investment amount Provision on Classified Fixed Term Investment: Types Sub- Standard Doubtful Bad /Loss

Percentage provision @ 20 % @ 50 % @ 100 %

of

Based for provision: Provision will be maintained at the above rate on the balance to be ascertained by deducting the amount of Profit Suspense and value of Eligible Securities from the outstanding balance of classified accounts. Eligible Securities: In the definition of Eligible Securities as mentioned in the above paragraph the following securities will be included as eligible securities in determining base for provision. -100% of deposit under lien against the loan -100% of the value of government bond/savings certificate under lien -100% of the value of guarantee given by Government or Bangladesh Bank -100% of the market value of Gold or Gold ornaments pledged with the Bank -50% of the market value of easily marketable commodities kept under control of the bank. -Maximum 50% of the market value of land and building mortgaged with the bank -50% of the average market value for last 06 months or 50% of the face value, whichever is less, of the shares traded in stock exchange. Step –10: Rescheduling: When a classified account is rescheduled then the classification status will be changed in to unclassified (Standard) account. In case of rescheduling down payment should be as follows: Serial

No of reschedule

Amount of Down payment

1

1st reschedule

15% of overdue installments or 10% of outstanding, whichever is lower

2

2nd reschedule

30% of overdue installments or 20% of outstanding, whichever is lower

3

3rd reschedule

50% of overdue installments or 30% of


outstanding, whichever is lower Exception : No down payment is required for rescheduling investment accounts of Readymade Garments which became stuck-up due to real stock lot (present & past) with a condition that the sale proceeds of stock lot goods to be credited to respective invest account.

Restrictions after reschedule : After reschedule (if any) the customer will get new facility subject to fulfillment of conditions

following

a) The defaulting borrower who has availed interest waiver must settle at least 15% of the compromise amount (excluding the down payment on rescheduling as per present guidelines) to avail any further credit facility from any Bank. b) In case of borrowing from other Banks, the same rule will be applicable, i.e. the borrower will have to settle at least 15% of compromise amount (excluding the down payment on rescheduling as per present guidelines), then, will be allowed to take regular facility from other Banks subject to the submission of NOC (No Objection Certificate) from the rescheduling bank. c) If there is any Principal waiver, no fresh facility will be allowed till the full settlement of compromise amount d) Export borrowers may be granted further credit facility (after being identified as not a willful defaulter), if required, subject to settle at least 7.5% of the compromise amount (excluding the down payment on rescheduling as per present guidelines) being paid. e) Prior approval of Bangladesh Bank shall have to be obtained if the loan is related to the director/ ex-directors of a Bank Company.

(** Work flow diagram of Izara Bil Baia shown at Annexure IV) Accounting Procedure The amounts of installment have to pay is to be calculated as per following formula: Principal amount No. of installment

a.

Principal amount of installment =

c.

That profit excluding gestation period =

(Principal amount + Principal amount of installment) x RR x No. installment 12x100x2 d.

Profit for gestation period =

Total installment = a

Principal amount x RR x No. months 12x100

b+c No. of installment


The amount repaid by the client per month/quarter may be set off against outstanding Principal and accrued rent proportionately as per following formula. Amount to be appropriated towards Rent = Amount Repaid x monthly rent Principal amount of installment + monthly rent Alternatively Amount to be appropriated towards Principal = Amount Repaid x Principal amount of installment Principal amount of installment + monthly rent a)Vouchering: Initiation: The following entries will be passed by the officials for procuring assets Dr. Izara Bil Baia A/C Cr. Murabaha Import Bill Or Cr. Pay Order/Demand Draft Or Cr. Customers A/C (Amount debited for purchasing asset @ Tk..) Month end : Rent/profit will be charged only on principal outstanding and will be transferred to income account a/c at the end of each month & following voucher will be passed Dr. Izara Bil Baia A/C Cr. Income on Izara Bil Baia A/C •

Installment Repayment (First profit realization ) : Any charge other than profit will be realized first then all accrued profit will be realized and finally principal amount will be realized Dr. Cash / Customer A/C Cr. Izara Bil Baia A/C

•

Installment Repayment (First principal realization) : Principal will be realized first. Once principal amount is fully adjusted then deduction of all accrued profit. Dr. Cash / Customer A/C Cr. Izara Bil Baia A/C

Month end after SMA to DF classification: The profit will be credited to profit suspense account instead of income account. Dr. Izara Bil Baia A/C Cr. Profit Suspense A/C Repayment after classification: At the time of repayment profit kept in suspense account to be taken first to income account and then principal to be adjusted. Dr. Cash / Customer A/C Cr. Izara Bil Baia A/C Dr. Profit Suspense A/C Cr. Income on Izara Bil Baia A/C


Special Accounting for BL classification: 2. When loan become BL, then charging of profit will be stopped. But Calculated profit will be kept in a table/Ledger for future claim to recover from customer or for use in law Suit.

Trans . Date

Investment Ledger from ---- to ----Investment A/C no., Name of Account, Address, Date of sanction, Date of Expiry, Investment Status Debit Credit Balance Principal Profit Charge Compensation Principal Profit Charge Compensation Principal s s Other condition : • Multiple disbursement may take place Reschedule may take place(Installment size, period, and expiry) Izara Bil Baiya (General) Short Term, Medium Term, Long Term investments allowed to individual/ Firm/ Industries for a specific purpose but for a definite period and generally repayable by installments falls under this head. Thid Type of lending are mainly allowed to accomodate financing under the catagories (i) Large & Medium Schale Industry and (ii) Small & Cottage Insustry. Very often term financing for (i) Agriculture & (ii) Others are also included here. Features,accounting,classification and provisioning are same as common Izara Bil Baia process mentioned previously. Izara Bil Baia ( HB) : Investment allowed to individual/ enterprises for continuous of house (commaercial fall under this type of investment. The amount os repayable by monthly installment with a specific period. Such investments are known as Izara Bil Baia (HB). No investments, except Izara Bil Baia (Staff HB), for construction of residential house building shall be accomodated to the Bank’s customer where there is no other business consideration. Features,accounting,classification and provisioning are same as common Izara Bil Baia process mentioned previously. Most other types of Izara Bil Baia Investments in practice are common in procedure. 5.4.4 BAI-SALAM Bai-Salam may be defined as advance purchase of a commodity/product making advance payment by the Bank on execution of a written contract wherein it is clearly mentioned that the commodity will be delivered as per specification, size, quality, quantity at a fixed future time in a particular place. The burden of cost of transportation and storage is also specially mentioned in the contract to avoid confusion. Generally, industrial and agricultural products are purchased in advance under the above terms to infuse finance so that production is not hindered for want of fund. Features: •

There must be a written contract between the Bank and the client which shall be the principal instrument to govern the advance buying and selling.

Profit

Char s


• •

The name and description of the commodity, specification, quantity, quality, size, date, time and place of delivery, transportation cost. & godown rent. If any, must be mentioned clearly in the contract. Purchase price, shall be paid in advance as mentioned in the contract immediately after signing the agreement. If mentioned in the contract delivery of the commodity/product can be taken in installments also. If the client fails to deliver the commodity in time as per specification as well as in specified quantity, the client shall be bound to repay the price received earlier in advance against the product along with compensation for delayed period. On the other hand if, the Bank receives less than the quantity contracted for, the client must pay back the value of product supplied less than the quantity contracted for. It is not necessary to mention cost of product and profit separately in the contract. Only purchase price of the product may be mentioned. Bai-Salam is the only exceptional mode allowed by Islamic Shariah in which case goods can be sold without having goods in possession & existence. If the goods are ready for sale Bai-Salam is not allowed in Shariah. After taking delivery of the goods. Bank shall be the owner & shall bear all risk till delivery of the same to the purchaser.

Types of Bai-Salam Investments followed By Exim Bank Ltd. 1) Bai Salam (E.C.C – /Pre-Shipment Investment) 2) Bai-Salam (Agri) 3) Bai-Salam (Export) etc. 1) Bai Salam (E.C.C – /Pre-Shipment Investment)) Instead of allowing Packing Credit (PC) and Export Cash Credit (ECC) like conventional banks BaiSalam if considered convenient may be adopted. Financial accommodation allowed to a customer for exports of goods fall under this head and is categorized as “Investment on Export”. The investment must be liquidated out of export proceeds within 180 days. Apart from the aforesaid procedure Musharaka Pre-shipment (PC) Musharaka Pre-shipment (ECC) Investment as per following procedures may also be adopted. Steps followed in Bai-Salam mode of investment are almost same as Bai-Muazzal mode which are previously discussed. Though the procedural differences are discussed belowProcedures Of Bai-Salam Investment: Export oriented Industries/Product The following procedures shall have to be followed while extending finance under Bai-Salam: • For the time being Bai-Salam shall be extended to export oriented industries especially in Garment Industries. • Investment under this mode shall be extended within the discretionary power of the Branch Manager or within the limit sanctioned by Head Office keeping in view the norms specifically after arrival of raw materials/ shipment of materials.


Before disbursement, the following charge forms/agreements/papers duly signed shall be obtained:

a. Application b. D. P. Note c. Letter of disclaimer d. Mortgage (if any) with relative documents & charge forms. e. Letter of guarantee. f. Bai-Salam Agreement. g. Balance Confirmation h. Any other C/F & documents as required. Allowing disbursement of Bai-Salam investment without execution of agreement and other charge forms will not be valid as per Shariah. • •

Sale/Export shall be done through the client. This should be clearly mentioned in the BaiSalam agreement unless otherwise settled and prescribed. Purchase price shall be fixed keeping in view that after export/sale of the same through the client as export/sale price mentioned in relative export LlC/Contract, the Bank gets, handsome income. In the Bai-Salam agreement description, specification, quantity, quality, size time and place of delivery shall be mentioned in the schedule keeping in view the requirements mentioned in Export/Master L/C/Contract. Normally the client shall be authorized as per terms of BaiSalam Agreement to deliver/ship the goods, to the ultimate buyer as per L/C/Contract at his risk and responsibility.

Local Products: • •

Bai-Salam Investment may be allowed against purchase of local products on observing all relevant formalities maintained above only after obtaining Head Office approval. Generally Bai-Salam investment shall be allowed against purchase of local agricultural products, like Rice, Wheat, Jute, Seasonal Fruits of renowned variety, like Fazlee Mango, Sugar, Banana, Jack fruit etc. or any other product and industrial products like Fan, Woolen Fabrics etc. or any other products which are required to be stored for certain period before marketing. But in no way storage of products shall be encouraged which may create artificial scarcity in the market. Investment under Bai-Salam shall be allowed only to given support to the Farmers/horticulturist etc. and to the industrialist to infuse finance for encouraging production which has demand.

Taking Delivery: Delivery of Export oriented products shall be taken as at 3.06 above and delivery of Local products shall be taken as per terms of contract and the same shall be disposed off keeping into consideration the availability of storage facilities etc. Compensation:


For delayed period of repayment arising out of non-delivery non-receipt of goods/distressed cargo, compensation as decided shall be imposed. All such cases must be referred to Head Office for ratification by the Shariah Council after imposition of compensation. Accounting Procedures: •

Bai-Salam Investment Account shall be opened in suitable place under Investment Port-folio in General Ledger & Statement of Affairs. All disbursements and receipts shall be taken to the debit and credit of relative Head of Account in the investment ledger party-wise where transactions shall be maintained and balanced with General Ledger at least on the lat working day of each month. Accordingly supplementary/check ledgers if required shall also be maintained. Bai-Salam Investment Account shall be opened in suitable place under Investment Port-folio in General Ledger & Statement of Affairs. All disbursements and receipts shall be taken to the debit and credit of relative Head of Account in the investment ledger party-wise where transactions shall be maintained and balanced with General Ledger at least on the lat working day of each month. Accordingly supplementary/check ledgers if required shall also be maintained.

Arbitration: In case any dispute arises out of Bai-Salam agreement regarding the terms and conditions of the agreement, the matter shall be referred to Head Office. The decision of Head Office shall be final. Repayment: •

In case the seller fails to deliver the goods within the stipulated time as per schedule hereto for any reasonable ground he may return the price of the commodity. Needless to mention here that compensation for delayed period of repayment shall be imposed as per Clause No.5 of this rule.

In case the consignment is exported in different installments and or the export proceeds are repatriated in installments or the consignment is required to be disposed of at a discount, the proceeds received at the first instance shall be adjusted towards outstanding Bai-Salam investment if any, and other, other claims shall be settled after words.

In case of local products, goods shall be sold on obtaining approval of Head Office.

5.4.5 MUSHARAKA Musharaka means partnership. Two or more persons jointly contribute capital and share profit as per agreed ratio and loss as per capital ratio. Under this mode Bank participates with its client as a partner of an enterprise. The Islamic Shariah principle of Musharaka is Shirkat-Al-Inan which means profit is divisible as per agreed ratio irrespective of capital contribution whereas loss is borne strictly on the basis of capital contribution of the partners involved. Features of Musharaka:


Both Bank and the client jointly contribute capital.

The entrepreneur will manage the enterprise.

The Bank shall take part in the policy and decision making as well as overseas the operation of the enterprise. The Bank shall appoint suitable person(s) at the cost of the enterprise to manage and maintain the books of accounts properly, if felt necessary.

As the entrepreneur shall manage the enterprise, the Bank may pay more of profit to him than that of proportionate capital investment.

Loss, if any, shall be shared on the basis of equity ratio.

General Points: •

Capital/Equity shall be invested by the Bank and Client as mutually agreed upon.

The word 'Profit' hereinafter shall mean Profit without deduction of administrative and overhead expenses as well as before payment of income tax & the same shall be divisible & shared by the Bank a client as per agreed ratio, while the loss, if any, shall be borne on the basis of Equity Ratio.

For equity participation in any Limited Company by way of owning shares, the Bank shall, however, earn dividend income as declared by the Company from time to time.

Since one partner has implied authority to bind other partners by borrowing money from any other source otherwise specified in the agreement, therefore, there must be a clause in the partnership Deed to the effect that the Client(s) must not borrow from any other source beyond the knowledge & written consent of the Bank and for any borrowing from other sources, if any the Bank shall not be liable.

Branches nominated by Head Office from time to time shall extend aforesaid Musharaka Investment with the concurrence of the competent authority.

Musharaka Investment Client may also avail investment facilities under any other Mode(s) of investment from the same Branch.

Scope/Area Of Musharaka : For operational purpose, Musharaka may be of the following types: Musharaka - Import. Musharaka - Export. Musharaka – Project Musharaka - Working Capital in Industrial Enterprise. Musharaka - Commercial Enterprise. Musharaka - Goods/Consignment. Selection Of Client/Entrepreneur:


The Client shall be selected strictly on the basis of following criteria: •

He must be an honest man of active habits with firm commitment having capability to generate income. His integrity & honesty must be undisputed.

He must have own capital to provide equity and. capacity to run the enterprise and foresight of predicting future market conditions.

In case of existing business man, he must have satisfactory track record, business morality and sufficient experience in the related line of business.

He must have a satisfactorily conducted Current Account with the Bank except in special cases and undisputed reliability.

He must be efficient in management & must have control over business.

He is not a defaulter in any Bank.

He must preferably be literate & well conversant with maintaining Books of Accounts.

He must deal in/manufacture such commodities, which is socially desirable and permissible by Islami Shariah.

True financial position is hardly reflected by the Clients in the Books of Accounts.

Profit/Capital can be manipulated by over valuation of opening stock/stock in hand.

Profit on the other hand can also be manipulated by under valuation of closing stock.

Depreciation can be charged at inflated rate to reduce profit.

The Statutory Auditors while certifying any Balance Sheet remain concerned with the legality rather than the propriety and veracity of expenditure shown.

Feasibility Of The Commercial Enterprise/ Project/Working Capital Proposal: •

Application in specific form F-43 shall be submitted by the Client (which may be proprietorship Firm/Partnership Firm/Limited Companies either in existence or to be floated newly) furnishing necessary information including requirement & purpose of investment.

• •

A preliminary project profile in all cases must be submitted as per standard format. Branch shall thoroughly check the correctness of the information given in the Application form (F-43) as well as assess the primary feasibility of the proposal on being satisfied that Projected Rate of Profit (PRP) is not below the rate fixed by Head Office from time to time and thereafter shall send the proposal to Head Office with detailed Profile/Proposal for sanction after proper evaluation/ feasibility of the proposal.

Head Office shall evaluate the proposal by analyzing the Cash Flow and profit Projection. If the proposal is found viable in all respect & the' Projected Rate of Profit (PRP) is not below the rate fixed by Head Office the same shall be placed for approval.

SANCTIONING AUTHORITY:


Musharaka Proposal shall need through examination. Therefore, all Musharaka Proposals either for Project, Commercial Enterprise or Working Capital shall be approved by Head Office. Acquisition Of Equity: The Bank at the time of formation of Musharaka with the Limited Companies may either participate in the equity of the Company by obtaining share or may reserve the right to covert the entire amount of its Musharaka Investment outstanding at any time into shares of the Company at the prevailing market price or the price arrived at in accordance with the following formula whichever is less. Shareholders Investment (Paid-up Capital) Less Accumulated Loss. Number of subscribed shares of Company Any fractional entitlement of share shall be settled by cash. The existing share holders i.e. the Clients (s) would have the prior right to purchase the acquired shares or to be acquired at a mutually agreed price should the Bank cheese to sell its holdings. The right to the acquisition of the company by conversion may avail in case of poor performance of the Company to enable the Bank to take over the existing management of the Company. Apart from covering the investment into equity, the Bank may also cover the Musharaka investment into any other suitable Mode. In case of partnership Firm/Proprietorship Firm, the right of acquisition of share will not arise since the Bank shall have the right to take over management as per terms of Musharaka Agreement. Profit: • The Profit rate stipulated in the approval of the proposal would be called Projected Rate of Profit (PRP). • During the accounting year of the Bank, the Bank would at the close of each calendar quarter obtain a provisional Account and the Profit/Loss shall be shared as per agreed ratio stipulated in the Musharaka agreement. • The Final Account as at 31st December every year shall be obtained within 30 days and adjustment would be made accordingly. • In case it is found after receipt of Final Accounts as on 31 st December that Projected Rate of Profit has not been attained or excess amount of Profit has been recovered on the basis of provisional - quarterly accounts, the cause thereof must be ascertained so that such situation does not arise in subsequent period. The adjustment, of any, required in respect of profit recovered on the basis of quarterly provisional accounts shall be made with Head Office approval subsequently. Loss:


Bank's share in loss, if any, shall be determined as per following formula: Share of Loss=

Loss x Total Daily Products of funds employed by the Bank Total Daily products of funds employed by both the Bank & the Client.

Product of Client funds employed shall be calculated on daily basis: In case it is found by the committee constituted by the Bank that the loss is genuine, the same shall be shared by the Bank' & the Client. The share of Bank's Loss shall be offset to the debit of investment Income Account (Musharaka). However, if it is found that the loss I has accrued due to the negligence, mismanagement, violation of any term of Musharaka Agreement, any other reasons, the -same shall have to be entirely borne by the Client & the same shall be recovered to the debit of either Musharaka investment account or current account of the Client. Nevertheless, the Client will also be liable for liquidated Damages at the Projected Rate of Profit which shall be credited to Liquidated Damages Recoverable/Recovered account (Musharaka) to the debit of either Current Account or Musharaka Investment Account of the Client. In case there is loss for two consecutive years or earn profit less than Projected Rate, the Bank may withdraw Musharaka Investment as per procedure laid down under serial no. 12. TENURE OF MUSHARAKA: •

For Project Investment, the tenure shall not be less than 3 years.

For investment in working Capital or for Investment in Commercial Enterprise the tenure shall be at least for 1 (one) year.

RENEWAL/WITHDRAWAL/CLOSURE OF MUSHARAKA: •

The Musharaka Account on the expiry of Agreement shall automatically be renewed for further period to be decided by the Bank provided the Bank does not serve notice to the contrary prior to the expiry of the Agreement.

In case the Bank decides to terminate the Agreement, it shall serve 3(three) months notice for repayment. In the event of Client's failure to payoff either in whole or in part, the Bank shall either be entitled to Liquidated Damage additionally till full repayment at the Projected Rate of Profit or convert the liability into any other suitable Mode of investment like Murabaha, Bai-Muajjal, Hire Purchase, Hire Purchase Shirkatul Melk, Leasing, Bai-Salam etc.

The Bank may, if necessary, allow the Client to payoff the investment gradually in each quarter along with provisional profit & thereby the Musharaka Investment shall be closed automatically with consequential reduction of equity of the Bank. However, the Client shall not be entitled to payoff the dues before due date without the consent of the Bank.

ENDSE, SUPERVISION & CONTROL:


As the Musharaka Mode has advantages like elimination of chance of reduction of profit rate due to delay in repayment and gear-up profitability through efficient management & productivity, at the same time it has also the disadvantage of sustaining loss through manipulation, diversion, negligence etc. as detailed under Sl. No. 2. Therefore, safeguards as given below among others shall have to be taken for successful operation of Musharaka Investment. a. Bank Official/Representative shall be nominated as Director/Partner of the enterprise to participate in the Management, Operation and supervision. b. The Chief Executive & the Accountant of the enterprise shall be appointed jointly by the Bank, and the Client. c. Bank shall also appoint the Statutory Auditor(s) for auditing the accounts of the Client's firm. d. The Accounts must have to be kept as per prescribed procedure of the Bank. Fortnightly reports as per prescribed Format shall have to be submitted to the Bank e. The client firm shall not incur any market liability or extend credit beyond the knowledge of Bank representative. f.

Promotional & Operational Budget shall be made with prior approval of the Bank.

g. Cash transactions shall be routed through Bank account of the Client Opened with EXIM Bank, wherefrom the investment shall be allowed. h. Partners/Directors drawing right shall be fixed up time to time with the approval of the Bank. i.

Investment under Musharaka shall be disbursed phase by phase commensuration the proposal and end use thereof shall be ensured by the Bank's representative & other supervisory staff.

j.

A special Cell in Head Office shall be created to evaluate follow-up & monitor the performance of Musharaka Enterprise. Apart from the above, the Zonal Managers shall personally supervise the performance of Musharaka Enterprise and submit report to Head Office from time to time for taking necessary action. Collateral if felt necessary to ensure repayment and obligations of the Client shall be obtained.

DOCUMENTATION: The Musharaka Agreement shall be the principal document wherein all terms & conditions shall be specifically incorporated & the same shall be executed by the parties involved. In addition, other usual charge forms like D.P. Note, Delivery Letter, Letter of Continuity, Personal Guarantee of the Directors/Partners, Mortgage Documents & other charge forms shall be obtained duly signed from the Musharaka Investment Client. RELATIONSHIP: It must be expressly agreed upon between the parties that the contractual relationship between the Bank & the Client shall be that of Creditor and Debtor for the purpose of recovery of any amount due or deemed to be due to the Bank. Though this is inconsistent to Musharaka Principal yet for legal constraint it is to be kept for the time being.


ACCOUNTING: •

Branch will open Musharaka Investment Account in the name of Client in a separate Ledger on receipt of Sanction Advice and completion on necessary formalities.

All withdrawals shall be allowed by cheque & deposits shall be made by Investment Pay-inslip. All required stationery to be used i.e. Cheque Leaves; pay-in-slip etc. shall be marked boldly with a Rubber Stamp to facilitate identification of Mode & sector so that General Ledger and Supplementary Register can be written by sorting out the vouchers.

Withdrawals shall be allowed on being satisfied about its End-Use and proper control shall be exercised so that no diversion takes place.

Musharaka Investment A/C and Musharaka Income Account shall be opened in the General Ledger and in the Income & Expenditure Ledger respectively. Apart from the above the sector-wise i.e. Industrial, Commercial Heads shall also be opened in Supplementary Register.

Balancing shall be done monthly.

CONSIGNMENT MUSHARAKA: In addition to the forgoing the following guidelines shall be followed for consignment Musharaka. •

Goods/consignment relating to Musharaka Investment must not be purchased from the participating Musharaka Client.

The investment will be allowed against goods under possession of the Bank on consignment basis.

L/Cs for import of goods may also be opened under the above mode of investment and for obvious reasons consignment under the aforesaid L/C shall be cleared by the Bank & stored in Banks Godown pending disposal of the same. In case it is agreed upon to sell out the title to documents of imported goods, the same may also be done on receipt of full payment there against including profit.

Before making investment shall in no circumstances exceed 75% value of the consignment. Bank must not make investment under Musharaka in any consignment, unless they have sufficient knowledge in respect of trade norm and prospect of feasibility of the trade in which they are going to make investment.

PERIOD OF INVESTMENT: The period of investment shall be determined as per trade norms of the commodity involved, keeping in view the durability, marketability etc. thereof. But for fast moving items, the period should not be more than six months and for slow moving items, the period should not be more than twelve months. If the situation demands, the period may be extended for a reasonable time with mutual understanding keeping in view the rate of return of the consignment. More than one consignment will be allowed within the same period keeping in view the overall limit of the party. But each deal should be treated


as separate and independent and will be closed on disposal of stock. SANCTIONING AUTHORITY: Until delegation of power to the Branch Managers in this regard, Musharaka investment proposal shall have to be sent to Head Office as per prescribed from for sanction. SECURITY: The equity of the entrepreneur in the consignment shall constitute the main security under this mode of investment. Bank, however, may sustain loss due to the willful negligence, mismanagement, and obstruction etc. of the Musharaka investment client which must be kept in view.

CALCULATION OF PROFIT & SHARING RATIO THEREOF: Before sanctioning investment the projection of profit shall be obtained from the client with whom Bank shall make Musharaka Investment and the Bank on the basis of above projection as well as keeping in view other consideration enumerated above shall take decision on the matter. Since the client shall manage the business applying his labour, experience and prudence, he will get higher percentage of profit. While determining the percentage of profit to be shared it must be kept in view that the Bank's normal rate of return on the equity involved under normal business condition does not fall below 18% per annum. But the estimated profit in no circumstances shall be shared i.e. the actual profit earned shall be shared by the partners involved as per agreed ratio. DOCUMENTATION: Before disbursement, the following documentation formalities must be observed and a copy of the same shall be delivered to the Musharaka client also: a. D.P. Note executed by the Musharaka client. b. D.P. Note delivery letter. c. Mushraka agreement wherein the following points have been incorporated among others. i)

Ratio of the share of profit as agreed upon.

ii) Share of loss on the basis of equity ratio iii) Indemnifying the Bank by the client against loss caused by negligence, mismanagement, obstruction or otherwise by him/his employee(s) or representative(s). DISBURSEMENT: • The client shall deposit his portion of equity by Cash in the Musharaka Investment account to be opened in his name in the investment ledger and Bank shall disburse the entire amount of investment to the debit of that account, thereby, reflecting the net investment position i.e. the amount of equity provided by the Bank in the consignment. • The price of the commodity to be purchased shall be paid to the seller through pay order or transfer entry as the case may be to the seller. However, petty expenses may be paid by cash to the investment client through cash debit voucher.


• Price of the commodity shall be disbursed after taking the consignment under the possession of the Bank as well as ensuring the quantity and quality thereof. Under no circumstances purchase price shall be disbursed until the goods are taken under effective control of the Bank. In no circumstances goods of the client or of its sister/allied concern shall be purchased. ALLOWABLE EXPENSES: The following expenses shall only be charged to Musharaka business: a. Proportionate amount of godown rent. b. Proportionate amount of godown staff salary. c. Cost of Insurance. d. Transportation cost, if any. e. Clearing Agents Bill, if any. f. T.A. Bill of bank officials shall be paid as per entitlement. But the period of Journey in a T.A. Bill must be reasonable. g. Any other reasonable expenses incurred by the Bank in connection with the investment shall be deducted from the gross income of the Musharaka business. DISPOSAL OF THE STOCK: • •

The sale price shall be compared with the projection of earned profit submitted earlier and also with rolling market price. The Manager on being satisfied in this regard shall issue delivery order under his signature. Delivery of the consignment shall be allowed only on receipt of the price of consignment and under no circumstances goods shall be delivered on deferred payment. Proper books of account including stock register shall strictly be maintained.

ADJUSTMENT OF THE INVESTMENT & DISTRIBUTION OF PROFIT: •

• •

After full and final adjustment of investment, the profit if any shall be shared by the Bank and the Client as per ratio mentioned in the agreement. The client's portion shall be credited to his current account and Bank's portion of profit shall be credited to Investment Income Account Musharaka. In case of genuine loss, it may be carried over to next consignment/ deal. If the loss continues consecutively for two deals, the account shall be finalized as per terms of agreement and the client will not be allowed further Musharaka Investment facilities. If it is found by the committee constituted by Head Office for the purpose that the loss has been caused due to negligence, mismanagement, and obstruction or otherwise as the case may be by the client, his employee(s) or representative, the same shall be recovered from the concerned client in the normal course or by taking legal action.

ACCOUNTING PROCEDURES: Branch shall maintain the following accounting procedures: a.

Initial Stage:

Dr. Cash/Client Account through cheque (Being the amount of his equity) Cr. Musharaka Investment Account (Name of the Client) Dr. Musharaka Investment Account (Name of the Client) Cr. Pay Order/Demand Draft Current Account of seller of goods. Dr. Musharaka Investment Account (Name of the Client) (Being custom duty/allowable expenses etc.)


Cr. EXIM Bank Account concerned Branch (for payment of custom duty) Cr. Case (Being the amount of petty expenses) b.

Adjusting Stage:

Dr. Cash/Purchaser's account vide cheque (Being the total amount of sell price of the goods) Cr. Musharaka Investment Account (Name of the Client) After entire disposal of consignment and crediting of sale price, the Musharaka Account may reflect credit balance i.e. net profit or debit balance i.e. net loss. c.

In case of net profit, the same shall be appropriated as under:

Dr. Musharaka Investment Account (Name of the Party) Cr. Investment Income A/C Musharaka Cr. Current Account (Investment client) d.

In case of net loss, the same shall be appropriated as under:

Dr. Musharaka Investment Account (Name of the Party) (Being the loss transferred in the above to new Musharaka

Investment account.

Cr. Musharaka Investment Account (Name of Party) (Being the amount of loss transferred from new Investment e.

account of the party).

In case of loss in two consecutive deal, the same shall be appropriated as under on obtaining Head Office approval:

Dr. Income Account Musharaka Investment (Being share of loss of Bank) Dr. Cash/Party's Account Cr. Musharaka Investment Account (Name of Client) MANAGEMENT REPORTING AND EVALUATION: Monthly statement shall have to be submitted to Head Office regarding the investment as per prescribed format wherein outstanding investment as well as the investment closed during the month with necessary remark shall be submitted. The evaluation in this regard shall be made by Head Office for information of the top Management. MUSHARAKA INVESTMENT FOR SMALL SHOPKEEPERS Trade modes of investments like Murabaha, Bai-Muajjal which are being practiced extensively and permissible under Islami Shariah Principle are in fact not very convenient for Banking Investment. This is truer when at present day Bank is required to undertake. Therefore, to get red of investment operational problems in respect of trade modes of investments as well as to make investment operations speedy, the Bank shall have to switch over gradually to Musharaka mode for small shopkeepers. Therefore, in this regard rules have been formulated which are as under: APPLICATION AND APPRAISAL:


Application vide F-43 (Revised) shall be obtained & credit report and appraisal/sanction shall be completed. Sanction Advice shall be issued on suitable format incorporating all terms and conditions. CLIENTS: Primarily retail shopkeepers shall be allowed facilities under the Scheme. Branches will extend investment to the existing retail shopkeeper clients having proven reliability and financial worthiness. MAXIMUM LIMIT PER CLIENT & SANCTIONING AUTHORITY: Tk. 5.00 Lac per client or existing discretionary power of the Branch Manager under Bai-Muazzal whichever is less shall be the maximum limit per client.

DESIGNATED BRANCHES: Primarily branches situated outside Dhaka and Chittagong cities shall be entitled to make investment under the Scheme within the Bank ceiling of Tk. 2 Crore for District Branch & Tk. 50 Lac for Branches situated outside District Head Quarters. SUPERVISION: Intensive supervision shall be the core controlling device of this Scheme to make it a success. One supervisor in the rank of Godown keeper shall supervise at least 50 clients by daily visit. All his expenses shall be built in the profit rate. The Supervisor while visiting the shops shall record daily sales of the Client in a prescribed Register and verify the same ensuring existence of rest stock in physical stock lot. At the last date of every month, profit shall be debited from the Investment Account of the concerned party at the predetermined Agreed Rate on the total sales. Authority for recovery of profits shall be obtained in a prescribed form and clause to the effect is to be inserted in the Musharaka Agreement. FORMATION OF MUSHARAKA AND DETERMINATION OF PROFIT RATE: If a client is primarily found expedient to be offered investment facilities under the scheme, the following procedures shall be followed to arrive at a predetermined Rate of Profit to charge on sale of the Client for investment in the business on 50% equity basis. •

Party's investment in stock of goods and average sales per day is to be ascertained and verified.

On the basis of average sales per day prior to Bank's investment, demand of the product/products, its saleable capacity of the client and utilization level etc. a post Bank's investment average daily sales is to be agreed upon by the Bank as well as the client.

On the basis of agreed average sale, Stock-Turnover (number of times the whole stock is turned or sold over the Year) will be calculated.

Then Bank will fix up profit at such rate on sales, so that it earns at least 16% rate of return on its Investment.


•

Primarily Bank will supply fund only equal to party's [Investment in stock (50-50)] equity shall fix up the rate of profit to charge on sales calculated in the following manner:

Stock Turnover =

Yearly Sales Average Stock

=

Sales per day x Yearly Working days (200) Average Stock

(Average stock will mean average closing stock after Bank's investment i.e. double of party's investment stock). Rate of profit to be charged on total sales = Annual Required Rate of Return Turnover x 2 Example: We found and establishment having party's investment in stock is Tk. 1.00 Lac. Sales per day is recorded Tk. 5,000/-. If Bank invests Taka One Lac more in his stock and thereby the stock is raised to Tk. 200,000/-. Although Bank may then insists on rising his average daily sales to Tk. 10,000/- i.e. proportionate rise with investment in stock (double the investment, double the sales), considering other relevant factors as mentioned above, Bank may mutually accept any reasonable figure even below exact proportionate rise. Now if average daily sales is agreed to be say, Tk. 6,700/- turnover in round figure comes to =

6,700 x300 Now, the bank to earn say, 20% rate of return on Investment 2.00.000

will require to charge only 1% profit on total sales =(

20 =1) 10 x 2

Thus 1% profit sharing with the client on total sales 20% returns on investment per annum as shown below: Return=annual sales (Tk. 6,700 x 300) x 1% = Tk. 20,100/Bank's Investment = Tk. 1,00,000/R.R. =

20.100 20% 1.00.000

In this manner we may calculate the rate of profit to be charged on sales for any turnover and for any required annual rate of return on investment. DOCUMENTATION: For Musharaka Investment under this scheme the following conditions shall be inserted in the Musharaka Agreement.


Bank at any time may cancel the contract and ask the client for repayment of Bank's dues.

The client shall exclusively Bank with the Bank.

General Power of Attorney in favor of the Bank shall have to be obtained in addition to all other charge documents.

Collaterals by way of Equitable Mortgage of property as cover for loss due to negligence of the client shall be obtained.

RISK FUND: A risk Fund be created @ 2% of Investment amount at the time of first disbursement which shall be non-refundable. The fund, if required, shall compensate actual loss of the Client as decided upon by Head Office. The risk fund shall be kept at the branch.

SALE PROCEEDS: All sale proceeds shall be deposited daily in the respective Investment Account. Sum of total deposit in the Investment. Account plus physical stock in the shop shall always be sufficiently (at least marginally) higher than the total Investment in stock (Bank + Client). Withdrawal from the Musharaka account shall be restricted up to the limit amount.

5.4.6 MUDARABA Mudaraba is a Mode of partnership financing base on Islamic Shariah Principle under which entire capital is provided by the Bank against a firm contract to the client on the stipulation that the client will manage the business with due diligence properly and effectively. Profit shall be shared by the partners as per agreed ratio and loss if any shall be borne by the Bank i.e. supplier of capital. Supplier of capital is known as "Sahibul Mal" and the user of capital is known as "Mudarib". TYPE OF MUDARABA: Though this Murabaha principle of Islamic Investment is not practiced in Exim Bank Ltd. There may be following types of Murabaha Investment.  General Mudaraba – it is not limited by time, place, item or any other restriction.  Specific purpose Mudaraba – it is limited by purpose and the Mudarib cannot go beyond the specified purpose. Features of Mudaraba: • •

Bank being the Sahebul Mal will provide the capital and the Mudarib will manage the business. The amount of investment shall be made known to both the parties. Normally Bank will not interfere in the affairs of business. But will have the right to supervise and oversee the operation.


• • • • • • •

Profit will be shared equally by the Bank and the Mudarib. However, Bank may allow more share of profit to the Mudarib at its discretion since he will manage the business Profit will be distributed to both the parties. For the time being parties will divide profit twice in a year i.e. on 30th June and 31st December. In case of specific purpose Mudaraba profit will be distributed at the end of each deal. Suitable Books of A/Cs have to be maintained by the Mudarib. Genuine loss if any, shall be borne by the Bank. But Bank will not shoulder any loss incurred for any fault of the Mudarib. In case of specific purpose Mudaraba the specified purpose with cleat description have to be incorporated in the Mudaraba agreement. A written agreement incorporating therein all the terms and conditions shall be executed by the parties before undertaking the venture.

PROCEDURE: It is very difficult to successfully operate a Mudaraba business since actual financial position may not be reflected, profit may be manipulated and legal coverage may not be available. As such at the moment Bank may go for specific purpose Mudaraba only on a very selective basis. In this regard the following procedures shall be observed. Selection of Mudarib – The criteria for selection of Mudarib shall be as under: 1. The Mudarib must be an honest man of active good habits with firm commitment having capability to generate income. His/her integrity and honesty must b undisputed and shall possess a good moral character. 2. He/she must be sufficient experienced in the line of business he/she proposes to undertake. No Mudaraba fund will be available for any experimental initiative. 3. He/she must be prudent and man of foresight to predict future market conditions. 4. The venture to be undertaken must have social utility and shariah permissibility. SPECIFICATION OF PURPOSE: • Purpose will mainly relate to time & item and in selecting the same following criteria shall be followed: • The item should be readily saleable and have constant and effective demand in the market. • The price of the item must not be subject to violent change. • The item must not be perishable in a short duration. • The item shall have to be profitable. • In selecting item the normal rate of return of the Bank shall be considered. Projection of expected profit shall be obtained and 50% of expected profits have to be sufficient to cover Bank's normal rate of return on investment. PERIOD OF INVESTMENT: • The period of investment shall be determined as per trade norms of the commodity involved. But in no case the period will exceed 12 months other than in special cases where the management deem necessary. In case of continuous loss the period will be limited to two deals. • Each deal will constitute a separate investment and investment may be made on revolving basis a limit is sanctioned for a definite period. PERIOD OF INVESTMENT: • The outlines given in Murabaha


Have a clear discussion with the client and understanding about the pros and cons of Mudaraba Mode of investment may be given.

APPLICATION: Obtain application in triplicate from the client as per standard format with an estimate of profit and loss. PROCESSING & APPRAISAL: • Follow in to the outline given earlier. • Mudaraba Investment may be made for any Halal item. This mode will be very much convenient for providing Capital to the rural has notes for their acquiring profitable items for generation of income. • Prepare Appraisal Report and ensure that all the information particulars, figures and statistics are incorporated correctly in the report. • Analyze lending risk covering among others the following points: • Honesty, integrity, social position and reputation of the client. • Location of business site/residence and experience of the client. No Mudaraba venture may be under taken where there is no easy communication linkage. • Composition of assets of the client where necessary. • Extent and nature of liabilities of the client. • Value of his/her liquid and fixed assets where necessary. SANCTION: •

On completion of appraisal if found suitable prepare a Mudaraba Sanction Advice in quadruplicate. If the proposal is within the discretionally power delegated to the branch by Head Office, send Mudaraba Investment Sanction Advice to the client in duplicate and one copy to concerned Department of Head Office relating one copy with the Branch. • If the proposal is beyond the discretionary power of the branch, forward the same to Head Office/Zonal Office with Appraisal Report in duplicate together with all other required papers and documents giving specific comments and recommendations. Head Office/Zonal Office will send back one copy of the Appraisal Report duly sanctioned/regretted to the Branch. On receipt of the Head Office/Zonal Office advice branch will issue Mudaraba investment advice or issue regret letter to the client under intimation to Head Office/Zonal Office. • Obtain one copy of Mudaraba Investment Advice from the client duly accepted. This should be preserved with documents of the investment concerned. DISBURSEMENT: • Allot an account number to each proposal sanctioned. For this purpose, use Investment Account Opening Register. This register will be maintained mode-wise. • Execute the appropriate documents including agreement and arrange their safekeeping. • Open file client-wise. Affix Investment Account in each file and in the related papers. • Enter the proposal in the Mudaraba Investment. Complete all the ledger head particulars and get them authenticated by an Officer. • Make the disbursement as per Sanction Advice. DOCUMENTATION: • D.P. Note • Mudaraba Agreement • Letter of Guarantee from a man of means & standing • Letter of Pledge/Hypothecation • Equitable/Registered Mortgage of Property. CONSIDERATION OF LOSS:


Bank will constitute a Special Committee consisting of 3 members taking at least one member from among the members of Shariah Council to determine the genuinely of loss and responsibility of the client in Mudaraba business. The decision of the Committee will be final. However, the 2 nd p[arty Client will have the right to represent before the Committee and depend his/her/their position.

EXPENSES TO BE DEDUCTED FROM THE GROSS INCOME OF THE MUDARABA BUSINESS TO DETERMINE THE ACTUAL PROFIT/LOSS POSITION: • Actual amount of rent. • Actual amount of staff salary if any. • Cost of Insurance. • Transport cost, if any. • Clearing agents' bill, if any. • Amount spent for remittance and collection in connection with the business. • Any other expenses as deemed reasonable by the Bank.

ACCOUNTING PROCEDURE: Initiation stage: (a) Dr. Mudaraba Investment A/C No. …………… of Mr./Mrs./Ms…………. (b) Cr. Current A/C No. …………… of Mr./Mrs./Ms………………………….. Adjustment stage: (a) Dr. Cash/Current A/C No. …………… of Mr./Mrs./Ms………………….. (b) Cr. Mudaraba Investment A/C No. …………… of Mr./Mrs./Ms…………. (entire amount of net income including the principal shall be credited to and actual profit/loss shall be reflected therein) Appropriation of profit: (a) Dr. Mudaraba Investment A/C No. …………… of Mr./Mrs./Ms…………. (b) Cr. Income A/C Mudaraba Investment (being bank's share of profit) (c) Cr. Current A/C No. ……… of Mr./Mrs./Ms. …………….. (being the party's share of profit) Appropriation of loss in 1st deal: (a) Dr. Mudaraba (2nd

deal)

Investment

A/C

No.

……………

of

Mr./Mrs./Ms………………….. (being the amount of loss transferred from Mudaraba investment A/C No. of the party) (b) Cr. Mudaraba (1st deal) Investment A/C No. …………… of Mr./Mrs./Ms…………. (being the amount of loss transferred to new Mudaraba investment A/C no. of the party)


Appropriation of loss in 2nd deal: (a) Dr. Income A/C Mudaraba Investment (b) Cr. Mudaraba Investment A/C No. …………… of Mr./Mrs./Ms………….

5.4.7 Bank Guarantee Definition: A Bank guarantee is a promise by the Bank to the creditor (Beneficiary) that Bank will pay the present or future debt in case of default by the principal debtor (customer) Feature: Applicant : 1) Government 2) Non Government Margin : 1) Cash 2) In the form of MTDR / Scheme( Lien confirmation) Required Field : 1) 2) 3) 4) 5) 6)

Guarantee number and date Beneficiaries name and address Guarantee Amount Margin Expiry Commission received up to

Types : 1) Foreign 2) Local a. Bid Bond b. Performance guarantee c. APG (Advance performance guarantee) d. Customs guarantee e. Others Bank Gurantee May also be classified as follows

GUARANT EE CONTINUI TY

SPECIFIC

BID BOND

PERFORMA NCE

MOBILIZAT ION

SHIPPING

CUSTOMS AND EXCISE


Accounting ProcedureVouchering: i) DR.

Initiation CR.

Customer A/C

Margin on BG Commission on BG Vat on Commission

DR.

CR.

Customer Liability A/C

Bankers Liability

ii)

Retirement

DR.

CR.

Margin on BG

Client A/C

DR.

CR.

Bankers Liability

Customer Liability

Step –1: Approval process • The investment proposal is forwarded to HO • HO investment committee analyze the proposal • If positive, sanction advice send to Branch • If negative, declined message send to branch Step-2: Approval advice • If positive, Branch receives approval letter with certain terms and condition from HO • Branch may set additional terms and conditions, if any. • Branch advices the Sanction letter to customer • If negative, Branch receives decline letter from HO and then • Review/Reconsider the proposal • Decline letter issued to the customer Step-3: Documentation • Fulfillment of terms and conditions by the customer o Acceptance of sanction advice by the customer o Personal guarantee (if any) o Charge documents  DP note (single and joint)  Letter of Guarantee (Counter Guarantee)  Letter of disbursement (In case of call back)  Any other documents as per sanction terms o Security document (If the facility is backed by collateral security)


Following original documents to be vetted for genuineness by the enlisted panel lawyer • Original Title Deed • Mutation Parcha with DCR • Rent receipt, Municipal Holding tax receipt • CS/SA/RS/BS latest math Jarip • Via deeds • NEC • Approval / NOC from respective statutory authority • Location map or site plan • Others  RM with RIPA supported by letter of satisfaction by enlisted lawyer. o CIB and CRG report o NOC from other institutions if necessary Step-4 : Preparation of Checklist c) Preparation of Checklist for disbursement permission from Head Office • Acceptance • Charge documents • Security documents • CIB report • Others

SL

Step-5 : Issuance Process • Branch receives request from the customer for issuance of Bank Guarantee • Verify all the necessary information required to issue a Bank Guarantee • Beneficiary name and address • Guarantee amount • Period of Guarantee • Margin • Expiry • Commission received up to • Others Proof sheet of Bank Guarantee(BG) as on -----Name of Name Date No of Type Favou Amount Margin Expiry custome of of BG. of ring of BG Ca % MTDR % r Group BG BG sh /Sche me

Step-7 : Follow-up and Supervision • Preparation of various report for effective monitoring • MIS report • Others Step-8 : Redemption • BG duly discharged by the beneficiary before expiry • Redemption and reversal of contra liability. (**Workflow diagram & schedule of Commission of Bank Guarantee is shown at Annexure IV)

Com. Received upto


Accounting Procedure: Vouchering: i) Initiation: After receiving request from customer to issue , the respective officer will pass on following vouchers after verifying all requirements: (1) DR. Customer liability A/C CR. Bankers liability A/C (Contra liability) (2) DR. Customer A/C CR. Margin on BG CR. Commission on BG CR. Vat on Commission ii) Closing : In case of adjustment following entries will be passed on. (1) DR. Margin on BG CR. Client A/C (2) DR. Bankers liability A/C CR. Customer liability A/C (Reversal of Contra liability) 5.4.8 QUARD Definition: "Quard is a loan which is returned at the end of the agreed period without any interest or share in the profit or loss of the business." Therefore, Quard is a kind of gracious loan given to the needy people for a fixed period without requiring the payment of interest or profit. The receiver of Quard is only required to repay the original amount of the loan. This sort of investment is service charge based. Features: •

Service charges applicable

Profit-free investment

Return of principal only

Collateral may be taken

Quard against MTDR

Quard E Hasanah (Staff PF)

Quard E Hasanah (Education scheme)

Quard (Executive car)

Quard (EHBI Safety scheme)

Quard (General)

Types:


Step by step process for Quard

Head office process the proposal and conveys their decision to the branch/EC approval to the branch

Branch receives the approval and advice the same to the customer

Documentation and other formalities to be completed by the branch

Request head office investment administration division for obtaining disbursement authority.

Head Office verify the checklist and give permission for disbursement

Disbursement authorization received by the branch

Follow up and supervision

Recovery and adjustment Step –1: Approval process

Step-2: Approval advice

Step-3: Documentation

• • • •

The investment proposal is forwarded to HO HO investment committee analyze the proposal If positive, sanction advice send to Branch If negative, declined message send to branch

• • •

Branch receives approval letter Certain terms and conditions Branch advices the Sanction letter to customer

Fulfillment of terms and conditions by the customer o Acceptance of sanction advice by the customer o Personal guarantee (if any) o Charge documents  DP note (single and joint)  Letter of disbursement


 Letter of continuity  Letter of arrangement  Lien Confirmation CIB report

o Step-4: Preparation of Checklist • Preparation of Checklist for disbursement permission from Head Office o Acceptance o Charge documents o CIB report o Others Step-5: Disbursement authorization • Branch seek disbursement authorization from Head Office complying terms and conditions • Head office verifies the checklist with sanctioned terms and condition • If comply with terms & condition then give permission for disbursement Step-6: Disbursement Process • Branch receive the disbursement permission from Head Office • Payment will be made by AWCD • Others Step-7: Follow-up and Supervision • Reminder sent to customer before expiry • Others Step-8 : Recovery and adjustment • Partial adjustment is allowed

Accounting Procedure: Initiation: After completing all necessary documentation, the respective officer will pass on following vouchers: (1) DR. Quard Account CR. PO/DD/Customer’s AWCD Account (Amount debited against disbursement of Quard account) (2) DR. Cash/ Customer’s AWCD Account CR. Service charge on Quard (Amount debited for service charge against Quard) Repayment /Closing: Partial repayment is allowed. The Customer can adjust the account gradually or at a time. Following voucher will be passed. DR. Cash/ Customer’s AWCD Account CR. Quard account (Amount credited for partial/Final adjustment of Quard account)


Classification & Provisioning: As per Demand (CL-3) And Term Loan(CL-4) Special feature and procedure for Quard against MTDR: 1. Only the MTDR holder of the Bank shall be entitled to avail Quard against respective MTDR against first party lien. In no circumstances 2 nd party can enjoy Quard facilities against MTDR of another person. 2. For availing Quard facility a customer must have an account with the Branch. 3. 80% of MTDR amount at the maximum can be allowed as Quard. 4. No profit on Quard amount shall be charged. There will be a link between Quard account and MTDR account in such a way that no profit on equivalent amount of MTDR shall be paid. 5. Service charge to be obtained @ 0.25% on Quard amount but not less than Tk. 500/= or not over Tk. 5,000/= per year. 6. Partial repayment is allowed. After partial repayment link will be applicable on reduced Quard amount. 7. Branch Manager has the discretion to allow Quard facility. 8. Before disbursement the following Papers/charge forms shall be obtained a. An application stating the purpose, time and mode of repayment. b. Pledge of the respective MTDR duly discharged in the back of the same. c. D.P. Note , d. Letter of Arrangement. e. Letter of disbursement f.

Letter of Pledge/Lien of MTDR and

g. Balance confirmation h. Letter of continuity Special feature for Quard E Hasana (Education Scheme): •

No processing fee

Profit-free investment

Multiple disbursement

No repayment during studentship

Return of principal only

Collateral free investment

Deposit of original Transcript/ Certificate

Assignment of Transcript / Certificate


5.4.9 Wazirat Bill Wakala Definition: A Bank under Islami Shariah can act as agent or wakil of the customer for execution of the transaction and charge the customer fees & commission under the principle of agency fee or ujr. Features: Bank act as commission agent and charged agency fees on the following advisory services: 1. 2. 3. 4.

Service Charge Charge may be taken in percentage or flat amount Charge will be taken at the time of initiation on monthly basis We opened BTB LCs against export L/C but BTB document is not received by our bank , then we disbursed ECC instead of PC through obtaining proper H.O. approval. This is a pre shipment finance. 5. The party have submitted export Document to us for purchase. If we found major discrepancies on that export document, then we do not negotiate the document and at urgent need of the party, we disbursed ECC instead of purchasing the document through obtaining proper H.O. approval. This is a post shipment finance. 6. If the Export document is clean, then bank will purchase a portion of that document after deducting all the related proportionate liability(BTB/PC/others). If it is foreign export document then FDBP and if local then LDBP. It is post shipment finance. Basically Bank purchase export document on verification of the creditworthiness and financial soundness of both buyers and sellers. 7. This incentive is given to the domestic textile and garment sector through Bangladesh Bank. As per Bangladesh Bank circular, bank may allow upto 90% temporary investment facility against cash assistance due to the receipts on the basis of banker customer relationship. Loan is adjusted from the fund in local currency received from Bangladesh Bank as cash assistance on account of the party. Cash assistance facility can be avail within 180 days after proceed realized and can be given against repatriated amount of one particular bill or full repatriated value against particular ECL Number. Cash assistance calculation i. Find the repatriated value [Example- Repatriated Value USD 23700.00] ii. Find Commission, charges & freight [Example- charges USD 317.50.00] iii. Calculate 80% on Net FOB value of proceed realized(a-b) amount [Example- USD 22947.03(80%) ] iv. Finally calculate entitlement of cash assistance at prescribed percentage on 80% value. [Example- USD 917.88(5% for RMG)*OD sight (Exp) of proceed realized date /lowest rate)] Types : a. WBW (LDBP) b. WBW(FDBP) c. WBW(Others)


F.D.B.P.: Payment made to a customer through purchase/ negotiation of a foreign documentary bills fall under this head. This temporary investment is adjustable from the proceeds of the shipping/ export documents. It falls under the category of “Investment on Export”. L.D.B.P.: Payment made against documents representing sell of goods to Local export oriented industries that are deemed as export and which are denoted in local Currency/ Foreign currency falls under this head. This temporary liability is adjustable from proceeds of the bill. This type of investment is also practiced under the principle of Bai-Muajjal investment. F.B.P: Payment made to a customer through Purchase of Foreign Currency Cheque/ Drafts fall under this head. This temporary investment is also adjustable from the proceeds of the cheque/ draft. Business rules: • • •

Service charge will be taken at the time of initiation @1.5% per month To be adjusted from BIAM(PC) or respective Export Proceeds Entitlement to be calculated on net FOB value of ELC. Step by step process for Wazirat Bill Wakala

Head office process the proposal and conveys their decision to the branch/EC approval to the branch

Branch receives the approval and advice the same to the customer

Documentation and other formalities to be completed by the branch

Request head office investment administration division for obtaining disbursement authority. Head Office verify the checklist and give permission for disbursement by loading the Limit in the system Disbursement authorization received by the branch & make disbursement as per Client request

Follow up and supervision

Recovery and adjustment


Step –1 :Approval process • The investment proposal is forwarded to HO • HO investment committee analyze the proposal • If positive, sanction advice send to Branch • If negative, declined message send to branch Step-2 :Approval advice • If positive, Branch receives approval letter with certain terms and condition from HO • Branch may set additional terms and conditions, if any. • Branch advices the Sanction letter to customer • If negative, Branch receives decline letter from HO and then • Review/Reconsider the proposal • Decline letter issued to the customer Step-3 :Documentation • Fulfillment of terms and conditions by the customer o Acceptance of sanction advice by the customer o Personal guarantee (if any) o Lien of Export L/C or Export Document o Export/Import documents o Acceptance from other Bank o Charge documents  DP note (single and joint)  Letter of disbursement  Letter of arrangement  Letter of continuity  Letter of hypothecation (Bills)  Any other documents as per sanction terms o Security document (If Investment is backed by collateral security)  Following original documents to be vetted for genuineness by the enlisted panel lawyer • Original Title Deed • Mutation Parcha with DCR • Rent receipt, Municipal Holding tax receipt • CS/SA/RS/BS latest math Jarip • Via deeds • NEC • Approval / NOC from respective statutory authority • Location map or site plan • Others  RM with RIPA supported by letter of satisfaction by enlisted lawyer. o CIB and CRG report o Proceeds Realization Certificate (PRC) o Certificate from BTMA regarding uses of local Yarn/Fabric o Auditor’s certificate regarding eligibility of cash assistance o NOC from other Bank/NBFI where customer has liability Step-4 : Preparation of Checklist d) Preparation of Checklist for disbursement permission from Head Office • Acceptance • Lien of export L/C • Charge documents • Security documents


• • • • • • • • •

CIB report CRG PRC BTMA certificate Auditors certificate Certificate from Department of Environment, if needed. Certificate from Department of Fire Service & Civil Defense Certificate from Department for Inspection of Factories Others

Step-5 : Disbursement authorization • Head office receives disbursement authorization request from branch complying terms and conditions • Head office verifies the checklist with sanctioned terms and condition • If comply with terms & condition HO provide disbursement authority by loading limit in the system • Disbursement authorization in case of deferral issues • If not, refer the same to branch for fulfillment of lapses Step-6 : Disbursement Process • Branch receive the disbursement permission from Head Office • Branch receive request from customer to pay salary, wages, other etc • Payment will be made by • PO/DD to the supplier • AWCD or other A/C of the customer • Disbursement may be made phase by phase • Calculation of service charge • Rate of 6 months MTDR+3% • Others Step-7 : Follow-up and Supervision • Periodical visit by investment officer/In charge • Preparation of various report for effective monitoring • Others Step-8 : Recovery and adjustment • Adjustment by the respective export proceeds (** Work flow diagram & schedule of charges shown at annexure VI) Accounting Procedure : i) Initiation: DR. Wazirat Bill Wakala investment A/C CR. AWCD ii) For charge realization at the beginning of each period (monthly): DR. Wazirat Bill Wakala Investment A/C CR. Income A/C iii) Adjustment :


DR. BIAM (PC) / Export Proceeds CR. Wazirat Bill Wakala Investment A/C (Bill Amount) DR. H.O. IBCA (Fund received from B. Bank under Cash assistance facility) CR. Wazirat Bill Wakala Investment A/C (Bill Amount) Chapter 6 Analysis & Findings Analysis & Findings 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 credit or 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, as 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. From these two principles of the theoretical basis of Islamic banking, it may be said that Islamic financial relationships are of a participatory nature (Ahmad, 1993). Islamic Banking practice in Bangladesh has gained remarkable momentum for past few years. It was possible just because of trusted partnership between the business people and the Banks running under Islamic Shariah Principal. Though Islami Bank Bangladesh Limited was the pioneer to introduce Islami Banking system in Bangladesh, presently new Islami Banks are taking share of IBBL in business arena. It is proven that in our country all sort of business dealing are fully complied with Islamic Investment Principles. During my internship, I went through for different modes of Islamic Investments followed by Export Import Bank of Bangladesh Limited and practically found that all the financing products act in accordance with Shariah Principle, ensuring buying & selling of goods. Instead of interest Profit & service income is the main sources of earning for Islami Banks. We may go through a SWOT analysis on investment Banking in Exim Bank Ltd. 6.1 SWOT Analysis: SWOT analysis is the complete study of an organization’s exposure and its strength, weakness, opportunity and threat can easily reflects its potentiality. This facilitates the organization to make their existing line of performance and also foresee the future to improve their performance in comparison to their competitors. As though this tool, an organization can also study its current position, it can also be considered as an important tool for making changes in the strategic management of the organization.


Strengths: • EXIM Bank Limited has already established a favorable reputation in the banking industry of the country. It is one of the leading private sector commercial banks in Bangladesh. The bank has already shown a tremendous growth in the profits and deposits sector by running the Bank under Shariah Principles. •

EXIM Bank has provided its banking service with a top leadership and management position. The Board of Directors headed by its Chairman Mr. Md. Nazrul Islam Majumder is a skilled person in business world. Alamgir Kabir, the Advisor of the bank is a reputed senior chartered accountant having 30 years vast experience in accounts, audit, and finance and banking at home and abroad. Under the prudent leadership of former Managing Director Mr. Mohammed Lakiotullah, the Bank attained a firm establishment. Present Managing Director Mr. Kazi Masihur Rahman, also a proven leader, leads the Bank for utmost modernization. The top management officials have all worked in reputed banks and their years of banking experience, skill, and expertise will continue to contribute towards further expansion of the bank.

EXIM Bank Limited has already achieved a high growth rate accompanied by an impressive profit growth rate since 2001. The number of deposits and the loans and advances are also increasing rapidly.

EXIM Bank has proven & vastly experienced Shariah Council members to ensure the all activities in conformity to the Islamic Shariah Principle. Time to time the investment modes are reviewed to comply the current market & government policy with shariah.

Exim Bank Maintains a standard interactive corporate culture. The working environment is very friendly, interactive and informal. And, there are no hidden barriers or boundaries while communicate between the superior and the employees. This corporate culture provides as a great motivation factor among the employees & the clients as well.

EXIM Bank has the reputation of being the provider of good quality services too its, potential customers.

Weakness: • The main important thing is that the bank has no clear mission statement and strategic plan. The banks has no long-term strategies of whether it wants to focus on retail banking or become a corporate bank or take the vast opportunities of Islami Banking. The path of the future should be determined now with a strong feasible strategic plan.


There is no effective marketing exposure for Islamic Investment. The slogan “Shariah Based Islami Banking” used by Exim Bank is old enough to introduce it self as Shaiah complying Bank.

The bank failed to provide a strong quality-recruitment policy in the lower and some mid level position. As a result the services of the bank seem to be Deus in the present days.

The poor service quality has become a major problem for the bank. The quality of the service at EXIM Bank is higher than the Dhaka Bank, Prime Bank or Dutch Bangla Bank etc. But the bank has to compete with the Multinational Bank located here.

In terms of promotional sector, EXIM Bank has to more emphasize on that. They have to follow aggressive marketing campaign.

Opportunity: • In order to reduce the business risk, EXIM Bank has to expand their business portfolio. The management can consider options of enlarging merchant banking or diversify into leasing and insurance sector complying shariah. • The activity in the secondary financial market has direct impact on the primary financial market. Banks operate in the primary financial market. Investment in the secondary market governs the national economic activity. Activity in the national economy controls the business of the bank. •

Opportunity in retail banking lies in the fact that the country’s increased population is gradually learning to adopt consumer finance. The bulk of our population is middle class. Different types of retail lending products have great appeal to this class. So a wide variety of retail lending products has a very large and easily pregnable market.

A large number of private banks coming into the market in the recent time. In this competitive environment EXIM Bank must expand its product line to enhance its sustainable competitive advantage. In that product line, they can introduce the ATM to compete with the local and the foreign bank. They can introduce credit card and debit card system for their potential customer.

• In addition of those things, EXIM Bank can introduce special corporate scheme for the corporate customer or officer who have an income level higher from the service holder. At the same time, they can introduce scheme or loan for various service holders. And the scheme should be separate according to the professions, such as engineers, lawyers, doctors etc.


Threats: •

All sustain multinational banks and upcoming foreign, private banks posse’s enormous threats to EXIM Bank Limited. If that happens the intensity of competition will rise further and banks will have to develop strategies to compete against an on slough of foreign the banks.

• The default risks of all terms of loan have to be minimizing in order to sustain in the financial market. Because default risk leads the organization towards to bankrupt. EXIM Bank has to remain vigilant about this problem so that proactive strategies are taken to minimize this problem if not elimination. •

The low compensation package of the employees from mid level to lower level position threats the employee motivation. As a result, good quality employees leave the organization and it affects the organization as a whole.

Some officials even have little knowledge on Shariah Principle, that often causes ambiguity between clients and that may affect the Bank’s image in the country.

6.2 Problems of Investment and Advances Department of EXIM Bank: •

Political influence is one of the major problems in Bangladesh. Due to political intervention the bank becomes obliged to provide loans in most of the cases, which are rarely recovered. Bank has to face this in convenience situation almost every year.

Sometimes the employee to unlawfully help the client deliberately overvalues the securities taken against the loan. As a result if the client fails to repay the loan the bank authority cannot collect even the principal money invested by the selling those assets. It is also a very important factor that leads to loan default.

CIB report is not readily available from Bangladesh Bank.

Like other Islamic Banks Exim Bank cannot invest money in Money Market, they has to be satisfies by Purchasing Islamic Bonds with surplus money, which is tremendous loss for the Islamic Banks operating in Bangladesh.

It is not always possible for Bank officials to go for physical verification of goods under various Islamic investment modes. It often operated on the base on trust of bankers & client relationship.

Chapter 7 Conclusion & Recommendation 7.1 Conclusion: EXIM Bank has converted all of their system and policy of traditional banking to Islami Banking. think which a very practical and bold decision is. As there are lots of local and foreign banks in Bangladesh, EXIM Bank Ltd. is promising commercial Bank among them. In this competitive market EXIM Bank has to compete not only the others commercial banks but also with the public Bank. EXIM Bank Ltd. is more capable of contributing towards economic development as compared with


other bank. EXIM Bank Ltd. invested more funds in export and import business. It is obvious that the right thinking of this bank including establishing a successful network over the country and increasing resources will be able to play a considerable role in the portfolio of development. Success in the banking business largely depends on effective lending. Less the amount of losses, the more the income will be from investment operations the more will be the profit of EXIM Bank Limited and here lays the success of investment Financing.

7.2 Recommendation: •

Bank should try to avoid giving investments to the political person who had bad reputation of repayment.

All the officials should be proper trained to operate the Banking under Islamic Shariah. Investment officers should have sound knowledge on different mode of Islamic Investments.

Evaluate the securities value properly to avoid the risk of loan recovery. The punishment system should be established to discourage the unlawful activities of employee.

Bangladesh Bank should more active to provide CIB report.

Enhanced attention should be given for marketing policy of the Bank for collection of deposit and also to mobilize the funds in different sectors.

Physical verification of purchasing goods should be done to ensure Islamic Shariah in different Investment modes.

Annexure I Positions of Investments General Investment: Particulars Mudarabaha post Import Mudarabaha Import Bill Bai Mudarabaha Bai Muazzal Bai Muazzal (work order) Bai Muazzal (Export) Bai Muazzal (PC) Wazirat Bill Wakala (ECC) Izara Bill Bia (LG/HP) Izara Bill Bia (HB) Izara (LF) Izara Bill Bia (staff HB) Izara Bill Bia (EIS) Wazirat Bill Wakala (CA) Quard (General) Quard against SS Quard against MTDR

Amount in Tk. 2008 1,550,721,290 360,685,460 1,717,661,658 11,924,659,350 787,418,973 2,329,833,511 615,410,544 2,597,501,097 16,523,630,091 4,490,769,815

Amount in Tk. 2007 1,167,079,354 583,545,386 958,793,443 8,926,890,497 554,510,032 1456268207 333,695,102 1,846,450,696 13,179,824,680 2,024,190,913

312,095,069 51,918,331 17,175,302 3,870,915 244,789,484

271,981,969 38239980 13,429,773 4,681,997 158,538,126


Wazirat Bill Wakala (SSD) Quard General (staff car) Hirepurchase (Executive Car) TR (MIB/MURA/MPI) Investment A/C credit card Marchant Banking Investment A/c In Bangladesh total Outside of Bangladesh Total Wazirat Bill Wakala (bill discounted and purchased)

1,961,715 35,531,719 7,237,339,825 18,658,185 17,076,978 50,838,709,312 50,838,709,312

1,441,507 4,127,667 37,142,776 6,638,092,766 15505128

In Bangladesh Outside of Bangladesh

2,367,671,536 431,296,255 2,798,967,791 53,637,677,103

1,523,179,988 457,629,235 1,980,809,223 40,195,239,222

Grand Total

38,214,429,999 38,214,429,999

Sources of data Annual Report of 2008 Mudarabaha post Import Mudarabaha Import Bill Bai Mudarabaha Investment PIE Chart for 2008

Bai Muazzal Bai Muazzal (work order) Bai Muazzal (Export) Bai Muazzal (PC) Wazirat Bill Wakala (ECC) Izara Bill Bia (LG/HP) Izara Bill Bia (HB) Izara (LF) Izara Bill Bia (staff HB) Izara Bill Bia (EIS) Wazirat Bill Wakala (CA) Quard (General) Quard against SS Quard against MTDR Wazirat Bill Wakala (SSD) Quard General (staff car) Hirepurchase (Executive Car) TR (MIB/MURA/MPI) Investment A/C credit card Marchant Banking Investment A/c

Sources of data Annual Report of 2008 Maturity Grouping Investments:


Particulars

Amount in Tk. 2008

Amount in Tk. 2007

On demand

360,685,460

583,545,386

Less than three Months

11,658,442,540

9,098,912,614

more than three Months but less than one year

20,137,348,000

14,953,828,000

more than one year but less than five years

9,703,051,000

6,500,633,000

more than five years

11,778,150,103

9,058,320,222

Total

53,637,677,103

40,195,239,222

Sources of data Annual Report of 2008

PIE Chart of Maturity Grouping for 2008

18%

22%

On demand Less than three Months

1%

more than three Months but less than one year 22%

more than one year but less than five years more than five years

37%

Sources of data Annual Report of 2008 Concentration of Investments: Particulars

Amount in Tk. 2008 Investment to director and others & Employees Investment to director and others ……

Amount in Tk. 2007

Investment to managing director

6,982,534

2,514,189

Investment to other senior executives

161,564,816

47,303,998

Investment to other Staff

232,959,484

301,674,205

Total

401,506,834

351,492,392

Investment favoring various client groups Commercial Investment /Trading

8,865,228,446

6,332,474,440

Export Financing

7,869,696,535

5,749,360,382

House Building Investment

3,319,825,057

1,913,040,407

Transport & Communication

1,372,150,429

1,041,490,252

…….


SME

8,479,844,704

7,819,393,902

Other Investment

2,652,067,098

1,703,346,746

Total

32,558,812,269

24,559,106,129

Industrial Investment Agricultural Investment

1,411,800,000

1,598,500,000

Textile Industries

13,063,026,584

8,982,350,236

Food & Allied Industries

1,280,593,228

1,475,712,649

Pharmaceuticals Industries

363,979,336

386,527,375

Lather Chemical & Cosmetics Etc.

810,343,673

694,134,721

Service Industries

1,822,102,890

810,138,807

Other Industries

1,925,512,289

1,337,276,913

Total

20,677,358,000

15,284,640,701

Grand Total

53,637,677,103

40,195,239,222

Investment Sector Graph for 2008

Amount in Tk

32,558,812,269 Investment to director and others & Employees

20,677,358,000

Investment favoring various client groups Industrial Invesment 401,506,834 1 Investment sector

Sources of data Annual Report of 2008 Sector wise Investment Ratio

3%

Commercial Investment /Trading

2% 1%

Export Financing

4%

16%

House Building Investment

2%

Transport & Communication SME Other Investment

24%

15%

Agricultural Investment Textile Industries Food & Allied Industries

6%

3% 5%

3% 16%

Pharmaceuticals Industries Lather Chemical & Cosmetics Etc. Service Industries Other Industries

Sources of data Annual Report of 2008 Annexure II Classified & Unclassified Investment: Particulars

Amount in Tk.

Amount in Tk.


Unclassified

2008 52,629,832,302

2007 39,560,132,431

Substandard

260,280,220

85,717,230

Doubtful

271,334,791

85,895,917

Bad/loss

476,229,790

463,493,644

Total Classified Investment

1,007,844,801

635,106,791

Total

53,637,677,103

40,195,239,222

Sources of data Annual Report of 2008

Chart Diagram of Classified & Unclassified Investments for 2007-2008 60,000,000,000 50,000,000,000 40,000,000,000 Amount in Tk 30,000,000,000 20,000,000,000 10,000,000,000 0

2007 Bad/loss

Doubtful

Substandard

Unclassified

2008

Sources of data Annual Report of 2008 Annexure III Work Flow Diagram

HO

EC’s approval /rejection after proper scrutiny

Yes

No

Branch Sanction Advice

HO

MD’s discretion. He approves/declines

Letters issued by branch either for review or decline the proposal

Documentation process

Disbursement Authorization No Yes Fully complied Follow-up and Deferral Recovery Disbursement & Adjustment terms & conditions Supervision

If not complied with the sanction terms, refer to branch for fulfillment of lapses


Branch

Classification & Provisioning

Suit file

Write off

Reschedule

Annexure IV Work Flow Diagram

EC’s approval /rejection after proper scrutiny

HO

MD’s discretion. He approves/declines

Yes

No

Branch

Letters issued by branch either for review or decline the proposal

Sanction Advice

HO

Documentation process

Disbursement Authorization No Yes BranchFully complied

Deferral

terms & conditions Classification & Provisioning

If not complied with the sanction terms, refer to branch for fulfillment of lapses Suit file

Write off

Disbursement Reschedule Annexure V Work Flow Diagram

Follow-up and Supervision

EC’s approval /rejection Recovery & Adjustment after proper scrutiny

Yes Sanction Adviceprocess Documentation

MD’s discretion. He approves/declines

Letters issued by Nobranch either for review or decline the proposal


HO

Branch

If not complied with the sanction terms, refer to branch for fulfillment of lapses MD’s discretion. He approves/declines

Fully complied terms & conditions EC’s approval /rejection after proper scrutiny Issuance process

HO

Follow-up supervision and Yes report generation

No

Redemption Sanction Advice Schedule of Commission for Bank Guarantee Branch Sl. Coverage 01. 02. 03.

100% by MTDR or Scheme 100% by Cash Documentation process Other than above

Letters issued by branch either for review or decline the proposal Commission rate 0.25% per Quarter Tk.300/- flat 0.50% per Quarter

Annexure VI Work Flow

Disbursement Authorization No

HO

Yes

Fully complied terms & conditions

Deferral

If not complied with the sanction terms, refer to branch for fulfillment of lapses

Disbursement Charges: 1.5% per month on principal amount and taken to PL account upfront. Annexure VII MURABAHA:

Follow-up and Supervision

Branch Recovery & Adjustment


a) D.P. Note (CF-1) b) D.P.

Note

h) Cash Memo in the name of the Bank Delivery

Letter

(CF-3) c) Agreement for Pledge of Goods (CF-4)

i)

Sanction Advice (INV-136)

j)

Balance Confirmation (CF-15)

k) Letter of Arrangement (CF-21)

d) Murabaha Agreement (AF-1) e) Purchase Schedule (CF-26) f) Letter of Disbursement (CF-6) g) Letter of Disclaimer (CF-14) (In case goods are kept in hired godown of the party) BAI-MUAZZAL: a) D.P. Note (CF-01) b) D.P.

Note

g) Bai-Muazzal

Delivery

Letter

Agreement

(AF-02)

(CF-03)

h) Letter of Arrangement (CF-21)

c) Letter

of

Hypothecation

i)

(CF-05)

Bai-Muazzal Investment Sanction Advice (INV-135)

d) Letter

of

Disbursement

j)

(CF-06)

Balance Confirmation (CF-15)

k) Registered Mortgage of Land with

e) Purchase Schedule (CF-26)

RIPA (CF-22)

f) Cash Memo in the name of the Bank IZARA BILL BIA AGREEMENT : a) D.P. Note (CF-01) b) D.P.

Note

f) Letter of Authority (CF-20)

Delivery

Letter

(CF-03) c) Letter

g) Letter of Arrangement (CF-21) h) Izara Bill Bia Agreement Sanction Advice

of

Disbursement

(CF-06)

(AF-03) i)

Letter of Continuity (CF-19)

d) Purchase Schedule (CF-26)

j)

Supplementary H.P. Agreement (CF-16)

e) Cash Memo in the name of the Bank

k) Letter of Installment (CF-07)

Izara Bill Bia Agreement Musharaka Multanaquasa

(AF-03)

l)

Registered Mortgage of Property with RIPA (CF-22) g) Balance Confirmation c (CF-15)

Annexure VIII While making investment for purchasing Motor Vehicles under Izara Bill Bia. Agreement the following documents shall also have to be obtained: a) While making payment to the supplier for complete Bus/Truck/Car/Ambulance etc. Branches shall have to take possession of the same instantly and handover the same to the client on taking a receipt in this regard.


b) In case body making is required, Branch shall obtain possession of chassis while making payment there against. The chassis shall be delivered to builders on execution of tripartite agreement. Cost of body making shall be disbursed in installment commensuration with the progress of work. MUSHARAKA/MUDARABA: a) D.P. Note (CF-01) b) D.P.

Note

Delivery

f) Letter Letter

of

Disbursement

(CF-06)

(CF-03)

g) Letter of Arrangement (CF-21)

c) Musharaka

Agreement/Mudaraba

Agreement (Appendix-C/Appendix-

h) Letter of Continuity (CF-19) i)

Letter of Authority (CF-20)

D) d) Letter

of

Pledge/Letter

of

Hypothecation (CF-4 & 5) e) Balance Confirmation (CF-15)

BAI-SALAM: a) D.P. Note (CF-01) b) D.P.

Note

Delivery

e) Letter of Confirmation (Appendix-E) Letter

(CF-03) c) Letter

f)

Letter of Continuity (CF-19)

g) Bai-Salam Sanction Advice of

Disbursement

(CF-06) d) Letter of Disclaimer (CF-14)

Annexure IX In case the investment remains collaterally secured by Mortgage of property the following charge Forms Documents shall have to be obtained. •

Memorandum of Deposit of Title Deeds (CF-9) signed by the owner(s) of the property.


Personal Guarantee of the owners of the property (CF-13)

Original Title Deeds with certified C.S./S.A./R.S./Mutation Parcha and D.C.R.

Bia Deed(s)

Up to date Rent Receipts and Municipal Holding Tax Receipt.

Non-encumbrance Certificate.

Valuation Certificate by a Civil Engineer /Enlisted Surveyor and countersigned by the dealing officer and Manager mentioning forced sale value.

Area Map indicating the location of the property.

Approved Plan (if there is house on mortgaged land).

Legal opinion from the enlisted lawyer to the effect that the title is undisputed and the property can be taken as collateral security.

Affidavit sworn in before a first class magistrate by the owner of the property to the effect that property is free form encumbrance and ownership is undisputed.

In case Registered Mortgage of Property obtained, the Deed of Request Mortgage & RIPA duly drafted by Legal Advisor shall have obtain.

Annexure X In case the investment client is a Private/Public Limited Company the following documents shall have to be obtained in addition to the Charge Form mentioned above. i)

Resolution of the Board of Directors of the Company duly authorising to avail investment facilities

and to execute Charge Forms/Documents. ii) Personal Guarantee of all Directors of the Company (CF-13). iii) Execution of Schedule-XVIII and an agreement for creation of charges which is to be submitted to the Register of Joint Stock Company within 21 days of execution on obtaining receipt. In case investment is allowed under the Guarantee, CF-13 duly executed by the concerned person(s) with the particulars of his/their immovable properties are to be obtained. In case goods/documents delivered on Trust Receipt (T.R.) (CF-10) duly signed by investment client(s) is/are to be obtained. In case investment/Quard against TDR/SSD, (CF-8) along with D.P. Note and TDR/SSD duly discharge in the back is to be obtained. Apart from the above, Charge Forms as advised by Head Office as per sanction advice shall have to be obtained.


BIBLIOGRAPHY 1. Annual Report of EXIM Bank Limited (2006, 2007 & 2008). 2. Several Booklets from EXIM Bank. 3. Several Newsletters from EXIM Bank. 4. EXIM Bank Web site. 5. Other different websited 6. Credit Operational Manual of EXIM Bank Limited. 7. Prospectus of EXIM Bank Ltd. 8. Manual of EXIM Bank Ltd. 9. Several Report in EXIM Bank Library. 10. CRM Guideline of Bangladesh Bank ACRONYMS A/C AD B/L BB BOE CCI & E CFR CIB CIF DD DP Note EPB EXP FC FDD FOB HS Code IBC IBCA IBDA IMP IRC L/C LCAF OBC PO PSI SWIFT TC TIN TR TT STD FDR

Account Authorized Dealer Bill of Lading Bangladesh Bank Bill of exchange Chief Controller of Import & Export Cost & Freight Credit Information Bureau Cost Insurance & Freight Demand Draft Demand Promissory Note Export Promotion Bureau Export Form Foreign Currency Foreign Demand Draft Free On Board Harmonized system of coding Inward Bills for Collection Inter Branch Credit Advice Inter Branch Debit Advice Import Form Import Registration Certificate Letter of Credit Letter of Credit Authorization Form Outward Bills for Collection Payment Order Pre Shipment Inspection Society for Worldwide Inter bank Financial Travelers Cheque Tax Identification Number Truck Receipt Telegraphic Transfer Short Term Deposit Fixed deposit receipt


CC C&F CRF ERC IBCT LIM LTR PAD SOD UCPDC

Cash Credit Clearing & Forwarding Clean Report Findings Export Registration Certificate Inter-branch Credit Transaction Loan Against Imported Merchandise Loan Against Trust Receipt Payment Against Document Secured Overdraft Uniform Custom & Practice for Documentary Credit


Analysis on islamic banking system of export import bank of bangladesh ltd