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Performance Evaluation of and SIBL

EXECUTIVE SUMMARY This report gives a clear idea the activities, the operation strategies, and the performance of SIBL. SIBL incorporated in 5th July 1995 and being into its commercial operation on 22 nd November with a view to provide exclusive service facilities to its client and accordingly meet the demand of banking service all over Bangladesh. During the short span of its operation the bank had been widely acclaimed by the business community from small business persons to industrial conglomerates for forward looking business outlook and innovative financial solution. In this competitive age, foreign trade becomes very much crucial for any country in the world. Specially, in the country like Bangladesh import is becoming very much crucial with the increasing rate of population. Every year a lot of food grains, machinery spare parts, dyes and chemicals, industrial raw materials, cotton textiles, pharmaceutical, cements, steel, fuel etc. are imported from various countries of the world. At the same time, the exportable goods of Bangladesh are jute, jute goods, jute yarns, carpets, tea, leather and leather goods, pottery, handicrafts, shrimps, ready-made garments, fishes, frog legs, spices etc. so the foreign trade is playing an important role for the economic development of our country. Commercial Banks are playing a vital role in financing imports and exports of our country. It is not possible to run any business or production activity in this age. Export and importers need finance in various stages of their activities. Exporters need finances in two states pre shipment finance and pot shipment finance. Pre-shipment finances are export cash credit, packing credit, Back to Back letter of credit etc. post shipment finances are negotiation of documents under L/C, loan against bill in collection (foreign bills) etc. Again import financing are Payment against Documents (PAD), Loan against Import Merchandise (LIM) etc. all these facilities are provided by commercial banks in Bangladesh. For this purpose, banks consider the borrowers business standing, integrity, liability with the Bank, terms and conditions of the L/Cs, securities offered etc. There are lots of risks involved in foreign trade. Therefore, the Financing Banks have to clearly justify the customers from a neutral point and gather the current information about the market. In the case of import-export, SIBL has a gradual-increasing trend from 2007. However, in order to capture higher market share than the competitors, the policy of SIBL in these regards should be reviewed and it should be made more flexible and competitive than the present.


The whole report consists of two parts. The first segment is based on the SIBL and the service it provides. And the second segment is based on the performance evaluation of SIBL. CHAPTER: 1 INTRODUCTION 1.4 OBJECTIVE OF THE STUDY This reposting study is aimed at focusing on Islamic Banking operational system in Bangladesh . In addition to this a comparative observations would be made with other commercial banking operation. The objectives are: •

To be acquainted with how bank perform its operation.

To know about the modes of investment of Islamic Banks.

To focus on products, services and financial condition of SIBL.

To expose strengths and weakness of SIBL in comparison with competitors.

1.5 METHODOLOGY OF THE STUDY In order to make the Report more meaningful and presentable, two sources of data and information have been used widely. 1.5.1 Sources of Data /Information Primary sources •

Face-to-face conversation with the respective officers and staffs of the Branch.

Informal conversation with the clients.

Observing banking activities for three month.

Secondary sources

1.5.2

Annual Report of SIBL.

Periodicals published by Bangladesh Bank.

Various book, articles, compilations etc.

Prior research reports.

Website Information. Analysis of data /Information

Two approaches have been mainly used in this report. •

Conceptual Approach.

Empirical Approach.


1.6 AREA OF STUDY This project is limited in overall banking system of the bank. All three functional areas of the bank are taken to the scope of study. 1.6.1 General Banking. 1.6.2 Foreign Exchange Area. 1.6.3 Investment Area. 1.7 ACTIVITY SCHEDULE 1stweek

2nd week

3rd week

4th week

5th week

6th week

Project design Questionnaire design Data collection Data processing Submission of draft report Submission of final report

1.8 LIMITATIONS OF THE STUDY It is obvious that every study has some limitations. The study I have made is of great importance and required me huge work. Those limiting factors that hampered my smooth workings in bank and finally in preparing this report are as follows: •

The organization maintains strict confidentiality about their financial and other information. They are afraid of any type of information leakage to their competitors. So there was always difficulty to have appropriate information from them.

Duration of this study was too short to have a sound understanding of the overall banking.

Scope of my study is so wide that analytical and comprehensive study is not possible.

Lack of sufficient books, papers and journals etc.

Web site of the Organization isn’t up to date to gather valuable information.


1.9 REPORT PREVIEW This project is short one providing only the facts and figures of current situation of operational activities and performance of the bank. CHAPTER: 2 2.1 INTRODUCTION Since the establishment of Social Investment Bank Limited has come forward as a private commercial bank and very encourage has come forward as the stimulator of economic activities in the country. The bank has been entrusted with the responsibility of undertaking various steps related to the development of the country’s commercial, industrial and agricultural sectors. The banking sector of a country is called the economic barometer of the country. As a pioneer commercial bank in the private sector in Bangladesh, Social Investment Bank provides considerable financial helps to the business sector that imports industrial goods and/or exports excess production outside the country for profit. Thus for imports the Social Investment Bank provides LIM (Loan against Import Merchandise) and LTR (Loan against Trust Receipt) facility and for exports provides both pre shipment and post shipment finances. Thus with these bank helps the prospects in the business sector has increased more than ever before. 2.2 HISTORICAL BACKGROUND OF SIBL Social investment Bank Limited (SIBL) is a banking company registered under the companies Act 1994 with its head office in 15 Dilkusha C/A, Dhaka-1000. The bank operates as a scheduled bank under a banking license issued by the Bangladesh Bank, Central Bank of the country. The Bank started its operation from 22, November 1995. SIBL is a capitalized new generating Bank with an authorized capital and paid up capital of Taka 585 million in 2005 and also. 585 million respectively as of December 2004.Currently the bank has 24 branches of which 12 in Dhaka, 4 in Chittagong, 1 in Sylhet, 2 in Narayanganj, 1 in Bogra, 1 in Khulna, 1 in Rajsahi, 1 in Sirajgonj. The bank undertakes all types of banking transaction to support the development of trade and commerce in the country. SIBL services are also available for the entrepreneurs to set up new venture and BMRE of industrial units. To provide clientele services in respect of international trade it has established wide corresponded banking relationship with local and foreign banks trade and financial interest home and abroad. Since the very inception, Social Investment Bank Ltd. is working with the philosophy of serving the nationals as an ideal and unique financial house. Every organization has some objectives of its own. The prime objective of Social Investment Bank Ltd. is to earn profit throw undertaking the responsibility of providing financial help for the development of the country’s commercial and industrial sector.


2.3 FORMATION OF SOCIAL INVESTMENT BANK 2.3.1 Formation: The Bank was incorporated in Bangladesh in the year 1995 as a banking company under the companies Act, 1994, all types of commercial banking services as provided by the Bank from time to time besides as a matter of policy the Bank conducts its Business on the principles of Mushataka, Murabaha, Bai-Muazzal and Hire Purchase transaction approved by Bangladesh Bank. 2.3.2 Branches Information At present, 24 (twenty four) branches are in operation all over the country. A list of branches is appended below: Sl.No

Name of the Branch & Date of Opening.

Address

Telephone No.

1

Principal Branch

15, Dilkusha C/A, Dhaka.

01713-018779

2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24

Agrabad Branch Khulna Branch Sylhet Branch Rajshahi Branch Gulshan Branch Babu Bazar Branch Moulvi Bazar Branch Bogra Branch Sirajgonj Branch IDB Bhaban Branch Khatunganj Branch Panthapath Branch Chandaikona Branch Sonargaon Branch Foreign Exchange Branch Halishahar Branch Hasnabad Branch Dhanmondi Branch Nawabpur Road Branch Jubilee Road Branch Uttara Branch Fatullah Branch Mirpur Branch

103, Agrabad C/A, Chittagong. 2 Sir Iqbal Road, Khulna. Central Plaza, Amberkhana, Sylhet 219 Shahe Bazar Main Road, Rajhahi. 125, Gulshan Avenue, Dhaka. Sultan super Market 18/4, Armanin Street, 77/7 Wahid Center, Moulvi Bazar, Tin Potty, Borogola, Bogra. Zaman Complex, S.S. Road Sher-E-Bangla Nagar, Dhaka. 96, Khatungonj, Chittagong. Bashundhara City Shopping Mall, Pabna Bazar, Royganj Sirajgonj Mograpara, Sonargaon, Narayangonj. BIWTA Bhaban, 141-143, Motijheel C/A, VIP Plaza, Plot # 15/A, Road # 2, Block-G Hasnabad Super Market,Keranigonj. House # 84, Dhanmondi R/A, Dhaka. 82 Nawabpur Road. 610/11, jubilee Road, Chittagong. Plot # 27, Road # 7, Sector # 3, Uttara Fatullah Bazar, Narayanganj Block – Kha, Sec – 6, Main Road – 1

031-714041 041-722133 01711-946325 0721-812317 01819-215161 7395118-9 01911-350966 051-65833 0751-63203 8115789 01819-315328 01913-088821 01715-805435 01819-251709 01817-530004 01819-345299 01711-565893 01819-274072 7174994-5 01819-326288 8961124 01911-358157 01819-403982

2.3.3 Capital Structure: Capital structure of social investment bank Ltd. is as under: 1. Authorized capital (4000.00 million, ordinary shares of Tk 1000 each) 2. Paid up capital (585.00 million, ordinary shares of Tk 1000 each) The directors may revise the capital structure from time to time according to the need.


2.4 OBJECTIVES & GOALS OF SIBL i)

Sectoral objectives The key sectoral objectives are: a. To humanize corporate finance in the formal sector through participatory market mechanism with collateral. b. To socialize non-corporate finance in the non-formal sector through non-market and participatory custom-tailored micro-level credit package without collateral. c. To monetize voluntary sector through participatory financing mainly on joint ownership basis. d. To integrate these three sectors operational activities of the Bank to various willconceived and well-planned “Social Assignment and Investment Schemes” or “Social Fund” for making them economically and ethically “transparent” and “revealed”

ii) Overall Operational goals The key thrusts of the operational goals are as follows: a.

Empowering the family of the poor by creating income opportunities as well as strengthening the family of the rich for a better future generation.

b.

Achieving sustainable participatory economy, Social Security, and peace for a society.

2.5 MISSION OF SIBL •

High quality financial services with the latest technology.

Fast, accurate and satisfactory customer service.

Balanced & sustainable growth strategy.

Optimum return on shareholder’s equity.

Introducing innovative Islamic banking products.

Attract and retain high quality human resource.

Empowering real poor families and create local income opportunities.

Providing support for social benefit organizations- by way of mobilizing funds and social services.

2.6 VISSION OF SIBL


Social Investment Bank Ltd started its journey with the concept of 21 st Century Islamic participatory three sector banking model: i) Formal Sector- Commercial Banking with latest technology; ii) NonFormal Sector - Family Empowerment Micro-Credit & Micro-enterprise program and iii) Voluntary Sector - Social Capital mobilization through CASH WAQF and others. Finally, "Reduction of Poverty Level" is our Vision, which is a prime object as stated in Memorandum of Association of the Bank with the commitment "Working Together for a Caring Society" 2.7 FUCNTIONS OF SIBL 1. Mobilization of idle resources of the country by accepting Deposits from the general public. 2. Granting Loans and Advances to the individual firms and companies for activating and developing trade, commerce and industries and other productive activities in the country. 3. To give facilities to the client and shareholders in a systematic way. 4. Give encouragement to the people for savings. 5. To increase investment. 6. To make easy transfer of foreign currency. 7. To identify consumer’s demand and fulfill their demand by supplying money. 8. To improve economy by borrowing financial facility. 9. To assist capital market. 2.7.1 Management Hierarchy CHAIRMAN


MANAGING DIRECTOR DEPUTY MANAGING DIRECTOR EXECUTIVE VICE PRESIDENT SENIOR VICE PRESIDENT VICE PRESIDENT SENIOR ASSISTANT VICE PRESIDENT ASSISTANT VICE PRESIDENT FIRST ASSISTANT VICE PRESIDENT SENIOR EXECUTIVE OFFICER

EXECUTIVE OFFICER SENIOR OFFICER OFFICER JUNIOR OFFICER ASSISTANT OFFICER TRAINEE ASSISTANT OFFICER

2.7.2 The Ownership Pattern This is a private sector commercial Bank providing comprehensive range of banking services. The bank is owned as follows: Promoters 50% Government 5% Public 45% At present the Bank has an amount of Tk.4000.00 million of Authorized Capital and Tk. 585.00 million of Paid-up Capital. 2.7.3 Human Resource There is no alternative to skilled and trained manpower in service Industry. Bearing this in mind the well educated, promising and honest workers are being appointed and trained. Bank has given top priority to develop skilled manpower and introduce them with modern technologies with the purpose of developing quality customer services. The Bank has undertaken program to train up its employees


of all strata at its own Training Institute. A highly experienced person was appointed as Director (Training) of the Institute in the year 2001 with the task of formulating various training modules. Steps are being taken to shift the Institute to separate premises for facilitating training activities. Side by side, both inland and foreign training also imparted during the year as usual. A highly experienced, well educated and motivated workforce is playing vital role towards the growth of the Bank deserve appreciation. The number of Executives and Officers as on 31 st December 2007 was 512 as against 455 as on 31st December 2006. 2.7.4 Training Institute Well educated peoples are needed to achieve the objectives of a firm. With a view to build enthusiastic and skilled work force, Social Investment Bank Training Institute was established in 24 th October, 1996 at Shyamoli, Dhaka. Every year the Institute trains sufficient number of employees. By the side of the new employee/officer, it is possible to trained SIBL’s existing employee/officer. There is a library in SIBL. There is about 2 thousand books remain in this library. Accounting, Management, Marketing, and Computer related books are in this library. In 2006, 1383 officer and no-officer was trained. 2.7.5 Foreign Correspondents of SIBL In order to gain maximum advantage from Foreign Exchange related business, the Bank has entered into correspondent relationship with almost all major 122 Banks of 109 countries of the world like Standard Chartered Bank, American Express Bank Limited, HSBC, HBZ Finance, Mashreq Bank PSC, Dresdner Bank AG and with local banks in Pakistan, India, Nepal and Bhutan etc with whom we have advising, reimbursing and confirming arrangement. 2.7.6 Overseas Operations of SIBL Social Investment Bank has set up joint venture Exchange Company named Gulf Overseas Exchange Co. Ltd, in Oman contributing 25% of its paid up capital. The present paid up capital of the company is Riyal Omani 1, 82,000.00. The Chairman of the company is the ex-minister of the government of Oman. The exchange company, established in 1985, now has three branches in Oman and is being managed fully by officials of SIBL. The company is running in profit. SIBL is also exploring possibilities of opening branches in the Middle East, Switzerland and USA. SIBL has entered into the Management contract with a Kuwati Exchange company to provide management and technical services. SIBL has acquired equity and management of Nepal Arab Bank Ltd. which is the largest and highly profitable Private Commercial Bank in Nepal.


2.7.7 Products & Services • Mudaraba Term Deposit.

2.7.8

Mudaraba Savings Deposit.

Al-Wadia Current Account.

Mudaraba Notice Deposit.

Mudaraba Scheme Deposit.

Cash Waqf.

Mudaraba Hajj Savings Deposit.

Mudaraba Monthly Savings Scheme.

Mudaraba Special Deposit Pension Scheme (5 Years).

Mudaraba Monthly Profit Deposit Scheme.

Mudaraba Education Deposit Scheme.

Mudaraba Home Saving Scheme.

Mudaraba Millinery Deposit Scheme.

ATM Service.

Locker Service.

One Line Banking Non-Formal and Voluntary Sector Banking Programs:

Since the opening of the Bank on 22nd November 1995, Non-Formal sector has started implementing its programs in various areas. Those are as follows: A. Environment-friendly program: Tokai Project: The project has a special strategic value. Till December 1995 only one group consisting of six members was formed at Hossain Marker, Utter Badda, Gulshan Thana. Group savings from the members is under process. Formation of more groups of ‘Tokai Pannaya Bavshee’ (Tokai goods Traders) is under process at different areas including Hossain Market. B. Real Life Non-formal School of Management: As a part of environmentally friendly program, the bank is committed to educate the Tokai and this has a worldwide strategic value. Till December 1995 one Tokai Non-formal School has been started at Hossain Market, Uttar Badda, Gulshan, Dhaka with 30 students with a view to giving them real-life education with Islamic orientation. In the process of learning, the Tokai developed propensity for savings. As a result they are regularly depositing a small portion of their income as savings. C. Mosque Property Development Program: Construction of Mini Market at Kazi Bari Mosque, Uttar Khan, Uttara, Dhaka, consisting of 4 shops has been completed where Bank has invested Tk.1.28 laces. Recovery rate in this sector is 100 percent. D. Capital Market Instruments-Securitization of voluntary sector:


In the voluntary sector, the bank is in the process of organizing Voluntary Capital Market Operation for mobilization of necessary fund and in the process of developing the following financial instruments with different sets of rules in con formality with Shariah: a) Waqf Properties Development Bond (specific and general). b) Cash Waqf Deposit Certificate (specific and general). c) Family Waqf Certificate. d) Mosque Properties Development Bond (specific and general). e) Mosque Community Share. f) Quarn-e-Hasana Certificate (specific and general). g) Zakat/Ushar payment Certificate. h) Non-Muslim Trust Properties Development. i)

Municipal Properties Development Bond (specific and general).

The value of all the bonds and Qurd-e-Hasana Certificate are guaranteed by the Bank against surrender of the instruments on maturity. 2.7.9 Rural Credit Program Agriculture is the main driving force of economy in Bangladesh. And the whole economic growth of the country depends on the development, modernization and investment of money in this connection. As a non-Government financial institution SIBL has been actively participation in rural credit program in the economic activities for large population of the country since 1992. SIBL has been working intensively in collaboration with Barindra Multipurpose Development Authority by conducting the Rural Credit program particularly in Rajshahi, Naoga, Chapainowabgong, and the northern part of the country in general. In the last 10 years bank has distributed the credit for Tk.69.85 million. The recovery of loan in this project is 94%. In 2001 bank has distributed the loan for Tk.7.00million. This is the first program for any private bank. Moreover, SIBL has been participating in Agro Based Industries and Technology Development project Loan financed by USAID since 1996. 2.8 OPERATING PERFORMANCE Total Operating Income of the Bank as on 31st December 2007 stood at Tk.902,503,334 million against Tk. 632,241,136 million of the preceding year. The Bank made an operating profit of Tk. 295,891,481million in 2006 against Tk.480, 782,904 million of 2007. A summery of operating result of the Bank as on 31st December 2007 vis-Ă -vis the position as on 31.12.2006 is shown below: (Taka in million)


Particulars

31.12.2006

31.12.2007

Growth Rate

Income from Investment

1,898,663,277

2,092,951,320

10.23 %

Profit paid on Depositors

1,596,612,146

1,705,054,119

6.79 %

Net Investment Income

302,051,131

387,897,201

28.42 %

Commission, Exchange & Other Income

268,731,415

350,231,722

30.33 %

Total Operating Income

632,241,136

902,503,334

42.75 %

Total Operating Expenses

336,349,655

421,720,430

25.38 %

Profit Before Provision

295,891,481

480,782,904

62.49 %

Total Provision

175,665,808

212,920,488

21.21 %

Profit Before Tax

120,225,637

267,862,416

122.80 %

Operating result of the Bank as on 31st December 2007 CHAPTER: 3 3.1 GENERAL BANKING AREA Financial institution/ intermediary that mediates or stands between ultimate borrowers and ultimate lenders is knows as financial institution. Banks perform this function in two ways- taking deposits from various areas in different forms and lending that accumulated amount of money to the potential investors in other different forms. General banking department aids in taking deposits and simultaneously provides some ancillaries services. General banking is the front-side banking service department. It provides those customers who come frequently and those customers who come one time in banking for enjoying ancillary services. In some general banking activities, there is no relation between banker and customers who will take only one service form bank. On the other hand, there are some customers with who banks are doing its business frequently. SIBL General banking is divided into six sections. 1) Account opening section.


2) Bills and clearing section. 3) Remittance section. 4) Cash section. 5) Locker Service. 6) Closing of an account. 3.1.1 Account Opening Section Under this section, SIBL officer opens different types of accounts on the request of clients. The procedure of opening account is given below. 3.1.1.1 Procedure for Opening of Accounts Before opening of a current or savings account, the following formalities must be completed by the customer: 1. 2. 3. 4. 5.

Application for the prescribed form Furnishing photographs Introduction by an account holder Putting specimen signatures in the specimen card Mandate if necessary

After fulfilling the above formalities, SIBL provides the customer a pay-in- slip book and a checkbook.

3.1.1.2 Application Form for Current/ Savings Account Followings are the contents of the application form for opening Savings or Current account in SIBL,1)

Type of the Account: Individual/ Joint/ Proprietorship/ Partnership/ Limited Company/ Club/ Society/ Co-operatives

2)

Name of the Applicant(s)

3)

Father’s/ husband’s Name

4)

Present Address

5)

Permanent Address

6)

Number, Date of issue, Date of Expiry & Place of Issue of Passport (if any)

7)

Date of Birth

8)

Nationality

9)

Occupation

10) Nominee (s) 11) Special Instruction of Operation of the Account (if any) 12) Initial Deposit 13) Specimen Signature (s) of the Applicant (s)


14) Introducer’s Information (Name, Account Number, Specimen Signature) In case of Join Account a) Operation instruction of the account b) Signature (s) In case of Partnership Account a) Partner’s Signature b) Partner’s Name ------The following formality along with the documents is to be completed before opening an account: a) Two copies of photograph of the Account Holder (s) duly attested by the Introducer. b) Account to be introduced properly. c) Introducer’s signature on Account Opening Form to be verified by an officer under full signature. d) Letter of thanks to Account Holder(s) and Introducer to be sent under registered post. e) In case of joint account, operational instructions are to be signed by the Join Account Holders. In case of Club/ Society,a) Up to date list of office bearers. b) Certified copy of Resolution for opening and operation of account. c) Certified copy of Bye-laws & Regulations/ Constitution. d) Copy of Government approval (if registered.) In case of Co-operative Society/ societies Limited,a) Copy of Bye-law duly certified by the Co-operative officer. b) Up to date list of office bearers. c) Resolution of the Executive Committee as regards of the account. d) Certified copy of Certificate of Registration issued by Registrar, Co-operative Societies. In case of Non- Government College/School/ Madrasha/ Muktab,a) Up to date list of the Governing Body/ Managing committee. b) Copy of resolution of the Governing Body/ Managing Committee. In case of Trustee Board,a) Prior approval of Head Office of the Bank. b) Certified copy of Deed of Trust, up to date list of members of the Trustee Board and Certified copy of the Resolution of Trustee Board to open & operate the account. In case of Minor’s Account,a) Putting the word “MINOR” after the title of the account. b) Recording special instruction of operation of the account. c) The account opening form is to be filled in and signed by either of the parents or the legal guardian appointed by the Court of Law & not by the Minor.


In case of Limited Company,a) Certified true copy of the Memorandum & Articles of Association of the company. b) Certificate of Incorporation of the company for inspection and return with a duly certified photocopy for bank’s records. c) Certificate from the Registrar of the Joint Stock Companies that the company is entitled to commence business (in case of Public limited Co. for inspection and return) along with a duly certified photocopy for Bank’s records. d) Latest copy of Balance Sheet. e) Extract of Resolution of the Board. General Meeting of the company for opening the account and authorization for its operation duly certified by the Chairman/ Managing Director of the company. a)

List of Directors with address (a latest photocopy of the form-xii).

b)

Authorized signature.

c)

Name.

General conditions of governing Current / Savings Account,(a) Minimum Balance to be maintained in current account Tk. 10,000 /- and in Savings account Tk. 5.000/- . (b) A suitable instruction by an introducer acceptable to the Bank is required prior to opening an account. (c) Recent photographs of the Account openers duly attested by the Introducer must be produced. (d) When cheques deposited are payable by other banks or outstation they are available after clearing or collection only, Service charge will be charged @ Tk, 100 /- in Current account and Tk 50 /- in Savings account yearly or as charged by the Bank from time to time as and when required. Provisional profit rate for Savings Account (SB) @ 6.85% (Half years compounding). 3.1.1.3. Deposits Accepted by SIBL Mudaraba Saving Deposit (MSD) These are profit bearing deposit accounts. The drawings are restricted in respect of both the amount of withdrawal and the frequency thereof so that the payment of interest does not become any compensating for the banker. Some time the restrictions are ignored against the depositor’s written confirmation to forgo his claim for interest on the total balance for the whole month of withdrawal. Special Saving Scheme •

Mudaraba Hajj Saving Scheme

Hajj is one of the basic pillars of Islam- the complete code of life. SIBL has introduced a scheme in the name & style “Mudaraba Hajj Saving Scheme” to facilitate the intending Muslims to perform Hajj properly at appropriate age. This is purely a saving scheme for Hajj. Any Muslim intending in


perform Hajj by building –up deposit required for meeting Hajj expenses will select one of the 20 alternative choices based on duration of period from 1 year to 20 years for building- up savings by monthly installments under this scheme. •

Mudaraba Education Scheme

SIBL being encouraged by the success of the Mudaraba deposit accounts, has introduced another savings scheme namely “Mudaraba Education Scheme” Initial Deposit 25,000 25,000 25,000 25,000 •

Maturity Period 7 Years 10 Years 15 Years 20Years

Total Payment 55,000 77,000 136,000 240,000

Monthly Education Allowance 1,000 1,500 2,500 4,500

Mudaraba Millionaire Scheme

People of Bangladesh are the followers of Islam. They are mostly interested to make interest free deposits. Taking these facts into consideration SIBL a joint venture Islamic bank introduced a monthly installment based "Mudaraba Millionaire Scheme" Rules and regulations of this scheme: Tk. 550/-, Tk. 1050/- or Tk. 2050/- is taken as monthly installment under Mudaraba principles of Islamic Shariah. Duration of this scheme will be 15, 20 and 25 yrs. After maturity an estimated amount will become as follows: Duration Monthly Installment Estimated amount after maturity 15 2,050/Tk. 10 lac 20 1,050/Tk. 10 lac 25 550/Tk. 10 lac The amount in the above is an estimated amount and may vary at maturity. After starting of operation of this scheme size of installment cannot be changed •

Mudaraba Special Savings (Pension) Scheme

Any Bangladeshi person aged above 18 yrs and having sound mental condition can may open this scheme. To open this account there must be a signature of a valued introducer. Parents or legal guardians can open this scheme in the name of their underage children. After maturity estimated profit will be applied as follows:

Monthly Installment

Estimated amount after maturity 5 years

10 years


100

8,000

22,500

200

16,000

45,000

300

24,000

67,000

400

32,000

90,000

500

40,000

1,12,500

1000

80,000

1,25,000

Mudaraba Monthly Profit Deposit Scheme

The features of this scheme are as follows: 1. Tk. 1, 00,000/-, 1, 10,000/-, 1, 20,000/- or 1, 25,000/- or any amount multiple can be deposited under this scheme. 2. The duration of the amount should be for Five years. 3. Profits

shall

be

distributed

under

this

scheme

as

follows:

a.

1,00,000/-

Tk.

900

(net)

b.

1,10,000/-

Tk.

1000

(net)

a.

1,20,000/-

Tk.

1,100

(net)

b. 1,25,000/- Tk. 1150 (net) 4. The payable profit will become due after 1 month of deposit. But the amount will be deposited to account in the last week of the month. 5. Generally, a depositor cannot withdraw the amount before 5 years. But, in unavoidable circumstances the depositor can withdraw the amount and in that case the depositor will have to submit the duly filled application form of the scheme. Mudaraba Term Deposit Mudaraba Term Deposit is one, which is repayable after the expiry of a predetermined period fixed by him. The period varies form 1 month to 1 year or above. These deposits are not repayable on demand but they are withdrawing able subject to a period of notice. Hence, it is popularly known as ‘Mudaraba Time Deposit’ or ‘Time Liabilities”. Normally the money on a fixed deposit is not repayable before the expiry of a fixed period. In case of MTDR Account the Bank needs to maintain a cash reserve. So SIBL offers a high interest rate in MTDR accounts. The Interest rates followed by SIBL For 1 month For 3 months

@10.50 @11.75


For 6 months For 1 year or above

For 1 year or above, 12.25

For 6 months, 12

@12.00 @12.25

For 1 month, 10.5

For 3 months, 11.75

Al Wadiah Current Deposit 1. ALWADIAH Current Deposit A/c’s are opened proper introduction with minimum initial deposit fixed by the Bank. 2. ALWADIAH Deposit is accepted on ALWADIAH principles which mean al Amanah with permission to use. According to this principle Bank can use the fund of the account along with other funds as per Shariah at bank's own risk. Account holder(s) will not share any profit/loss. 3. The Law and regulation of Bangladesh, usual customs and procedures common to banks in Bangladesh including Islamic Banking Principles shall apply to and govern the conduct of account opened with the Bank.

3.1.2 Bills and Clearing Section SIBL Local Office branch performs the bill clearing function through Local office. SIBL Local office acts as the agent of all SIBL branches for the clearing house of the Bangladesh Bank. There are two types of cheque which are1. Inward clearing cheque 2. Outward clearing cheque. 3.1.2.1 Inward Cheques: Inward cheques are those ones drawn the respective branch which have been presented on other banks and will be cleared / honored through the clearing house of Bangladesh Bank. For example the cheque drawn on SIBL Local Office Br, then the cheque is called inward cheque of SIBL Local Office Br,


Accounting treatment: Customer’s A/C

Debit.

SIBL General A/c Credit

3.1.2.2 Outward Cheques: Outward cheques are those ones drawn on other bank branches which are presented on the concerned branch for collection through clearing house of Bangladesh Bank. These cheques are called outward cheques. For example, the cheque drawn on Mercantile Bank LTD, Kawran Bazar Br has been presented on SIBL Local Office Br. This cheque is called the outward cheque of SIBL Local Office. Hence it is said that the cheque which is the inward cheque of one bank is the outward cheque of another bank. 3.1.2.3 Outward Bills for Collection (OBC). By OBC, we mean that those cheques drawn on other banks which are not within the same clearing house. Officer gives OBC seal on this type of cheques and later sends a letter to the manager of the branch of the some bank located in the branch on which cheque has been drawn. After collection of that bill branch advises the concerned branch in which cheques has been presented to credit the customer account through Inter Branch Credit Advice (IBCA). In absence of the branch of the same bank, officer sends letter to manager of the bank on which the cheques is drawn. That bank will send pay order in the name of the branch. This is the procedure of OBC mechanism.

3.1.2.4. Clearing: The scheduled banks clear the cheque drawn upon one another through the clearinghouse. SIBL is a scheduled Bank. According to the Article 37 (2) of Bangladesh Bank Order, 1972, the banks which are the member of the clearinghouse are called as Scheduled Banks. This is an arrangement by the central bank where everyday the representative of the member banks gathers to clear the cheques. The place where the banks meet and settle their dues is called the clearinghouse. The clearinghouse sits for two times a working day. The SIBL Local Office Br sends the instruments through Inter Branch Debit Advice (I.B.D.A). SIBL Local Office acts as an agent in this case. For this, Local Office branch gives the following entries, SIBL General A/C (Local Office Br) ---------------Dr. Customer’s A/C---------------------------------Cr. If the instrument is dishonored, the instrument is returned to the Local Office branch through I.B.D.A. along with the following entries, Customer’s A/C---------------Dr. SIBL General A/C------------------Cr.


3.1.2.5 Receiving Cheques for Collection: In SIBL, cheques of its customers are received for collection from other banks. In case of receiving cheques, following points should be checked very carefullya) The cheques should not carry a date older than the receiving date for more than 6 months. In that case it will be a ‘stale cheque’ and it will not be allowed for collection. Again the date of the cheque should not be more than 1 day’s forward than the receiving date. b) The amount in figures and words in both sides of the pay-in-slip should be same and it should also be same with the amount mentioned in figures and words in the cheque. c) The name mentioned in the cheque should be some in both sides of the pay-in-slip and it should be the same with the name mentioned in the cheque. d) The cheque must be crossed. 3.1.2.6. Cheque and Crossing A “Cheque” is a bill of exchange drawn on a specified banker and not expressed to be payable other wise than on demand. [According to section-6, Negotiable Instrument Act, 1881.] A cheque may be classified into: a) An open cheque which can be presented for payment by the holder at the counter of the drawer’s bank. b) A crossed cheque which can be paid only through a collecting banker. Crossing cheque: A cheque is said to be crossed when two transverse parallel lines with or without any words are drawn across the face. Crossing may be general, special or restrictive. 3.1.2.7. Issuing Cheque Book: Following procedures are maintained by SIBL, Local Office for issuing checkbook. (a) Firstly the customer will fill up the check requisition form. (b) The leaves of the checkbook under issue are counted to ensure that all the leaves and the blank requisition slip are in tact. (c) The officer writes A/C number and branch name on all the leaves of the checkbook. (d) The name and the A/C number of the customer are than entered in the checkbook register against the particular checkbook series. (e) Then the officer sightseer, checkbook, and requisition slip (f) Lastly the checkbook is handed over to the customer after taking acknowledgement on requisition slip. A cover file containing the requisition slip is effectively preserved as vouchers. If any defect is noticed by the ledger keeper, he makes a remark to that effect on the requisition slip and forward it to the cancellation officer to decide whether a new checkbook to be issued to the customer or not.


3.1.3 Remittance of Funds: Remittance of funds is ancillary services of SIBL. It aids to remit fund from one place to another place on behalf of its customers as well as non- customers of bank. SIBL has its branches in the major cities of the country and therefore, it serves as one of the best mediums for remittance of funds from one place to another. The main instruments used by SIBL, Local Office Br for remittance of funds. -Pay Order/ Banker’s check. -Demand Draft. -Telegraphic Transfer. 3.1.3.1 Bank’s cheque/ Pay order. The pay order is an instrument issued by bank, instructing itself a certain amount of money mentioned in the instrument taking amount of money and commission when it is presented in bank. Only the branch of the bank that has issued it will make the payment of pay order. The banker’s cheque must come the branch for payment wherever it is presented. Issuing of Pay Order: The procedures for issuing a Pay Order are as follows: 1.

Deposit money by the customer along with application form.

2.

Give necessary entry in the bills payable (Pay Order) register where payee’s name, date, PO no, etc is mentioned.

3.

Prepared the instrument.

4.

After scrutinizing and approval of the instrument by the authority, it is delivered to customer. Signature of customer is taken on the counterpart.

Cancellation of a Pay Order: If a buyer wants to cancel it, he should submit a letter of instrument in this regard and also return the instrument. 3.1.3.2 Bank Draft: The person intending to remit the money through a pay order has to deposit the money to be remitted with the commission which the banker charges for its services. The amount of commission depends on the amount to be remitted. On issue of the pay order, the remitter does not remain a party to the instrument i) Drawer branch ii) Drawee branch iii) Payee. This is treated as the current liability of the bank as the banker on the presentation of the instrument should pay the money. The banker event on receiving instructions from the remitter cannot stop the payment of the instrument. Stop payment can be done in the following cases:


i)

Loss of draft before endorsement: in this case, “Draft reported to be lost, payee’s endorsement requires verification” is marked.

ii)

Loss of draft after endorsement: In this case, the branch first satisfies itself about the claimant and the endorsement in his favor.

Charges: A commission of 0.15% is taken on the draft value & Tk.50/= is taken as postal charge. 3.1.3.3 Mail or Telex Transfer (TT): Telex transfer is another widely used mode for remittances of funds. In case of telex transfer the message for transfer of funds is communicated through tested telex. SIBL generally recovers from the telex charges in addition to the usual service charges. Issuing of TT: SIBL follows the following procedures: i)

The customer deposits money with SIBL to be sent.

ii)

The customer obtains a cash memo containing TT serial number.

iii)

TT serial number, notifying part name is mentioned in the telex message.

iv)

The Telex Department confirms transmission of the telex.

Accounting entries for TT: Cash A/C, Client’s A/C -----------------------Dr. SIBL General A/C (Local Office branch) ---------------Cr.

Procedures for the incoming TT: After receiving the telex, it is authenticated by test. TT Serial number is verified by the “TT inConcern branch” register. The following entries are given in the vouchers,SIBL General A/C (Local Office branch)-----------------------Dr. Client’s A/C------------------------------------------Cr. Tk. 50/= is taken as postal charge. The minimum commission is Tk. 50/= or o.15% of the amount whichever is higher. 3.1.4 Cash Section: The cash section of any branch plays very significant role in general banking department. Because, it deals with most liquid assets The SIBL Local Office Br has an equipped cash section. This section receives cash from depositors and pay cash against cheque, draft, PO, and pay in slip over the counter. 3.1.4.1 Receiving Cash:


Any people who want to deposit money will fill up the deposit slip and give the form along with the money to the cash officer over the counter. The cash officer counts the cash and compares with the figure written in the deposit slip. Then he put his signature on the slip along with the ‘cash received’ seal and records in the cash receive register book against A/C number. At the end of the procedure, the cash officer passes the deposit slip to the counter section for posting purpose and delivers the duplicate slip to the clients. Account treatment: Particulars Cash A/C Customer’s A/C

Dr./Cr. Dr. Cr.

3.1.4.2 Disbursing Cash: The drawn who wants to receive money against cheque comes to the payment counter and presents his cheque to the officer. He verifies the following informationa) Date of the cheque b) Signature of the A/C hold c) Material alteration d) Whether the cheque is crossed or not e) Whether the cheque is endorsed or not f) Whether the amount in figure and in word correspondent or not Then he checks the cheque from computer for further verification. Here the following information is checked: 1) Whether there is sufficient balance or not 2) Whether there is stop payment instruction or not 3) Whether there is any legal obstruction (Garnishee Order) or not After checking everything, if all are in order the cash officer gives amount to the hold and records in the paid register. Account treatment: Particulars Customer’s A/C Cash A/C

Dr./Cr. Dr. Cr.

The cash section of SIBL deals with all types of negotiable instruments, cash and other instruments and treated as a sensitive section of the bank. It includes the vault which is used as the store of cash instruments. The vault is insured up to Tk. 60 laces. If the cash stock goes beyond this limit, the


excess cash is then transferred to Head Office. When the excess cash is transferred to SIBL Head Office. The cash officer issues IBDA. Account treatment: SIBL General A/C Dr. Cash A/C Cr. When cash is brought from SIBL Head Office then, Account treatment: Cash A/C SIBL General A/C

Dr. Cr.

3.1.5 Locker Service: SIBL Local Office Br is providing facility of locker service for the purpose of safeguarding the valuable property of customers. The person or the organization that has any account in bank branch can enjoy this service. They Can keep their valuable assets in banker’s custody. Customers have right to look after with a key of their individual locker provided by bank. SIBL maintains the following types of lockers: ------ Large locker. ------ Medium locker. ------ Small locker. For enjoying this service, clients have to give charge yearly Tk. 1500, Tk. 1250 and Tk. 700 for large, medium and small locker respectively. 3.1.6 Closing of an Account: For two reasons, one can be closed. One is by banker and other is by the customer. By banker: If any customer doesn’t maintain any transaction within six years and the A/C balance becomes lower than the minimum balance, banker has the right to close an A/C. By customer: If the customer wants to close his A/C, he writes an application to the manager urging him to close his A/C. Different procedures are followed in cash of different types of A/C to close. Fixed deposit A/C is closed after the termination of the period. Closing process for current & savings A/C: i. After receiving customer’s application the officer verifies the balance of the A/C. ii.

He then calculates interest and other charges accumulated on the A/C.

iii.

If it bears a credit balance, the officer writes advice voucher. He gives necessary accounting entries post to accounts section.

iv.

The balance is returned to the customer. And lastly the A/C is closed.


But in practice, normally the customers don’t close A/C willingly. At times, customers don’t maintain any transaction for long time. Is this situation at first, the A/C becomes dormant and ultimately it is closed by the bank 3.2 FOREIGN EXCHANGE BANKING AREA 3.2.1 Foreign Exchange 3.2.1.1 Foreign trade: Foreign trade constitutes a sizable portion of international transactions of a country. Payment received for exports and made for imports form a substantial part of its remittances from and to other countries. In our country a major share of the current balance of payments is made up of exports and imports of merchandise on private and government account. Thus, trade is the most important factor giving rise to payments between countries. Foreign trade is a type of specialization, which like other forms of specialization increases productive efficiency and standard of living of the people of the country concerned. 3.2.1.2 Need for foreign trade: Foreign trade enables a country to have a much larger flow and much more diversified form of wealth than what is possible without it. The residents of a country are able to enjoy the use of commodities which otherwise may not be available to them at all. There is a wide difference in respect of the material and human resources, stage of technical and scientific progress, and possession of capital equipment in different countries. No country is in a position to produce everything in quantities large enough to provide its people a reasonably high standard of living. A country, therefore, enters into trade relations with other countries on account of certain basic differences due to topographical reasons in its economy from theirs. Commodities are imported because either they cannot be produced in the country at all or can be produced at a very high cost. Import of such commodities is a convenient and cheaper way of getting them. In exchange for imports, a country has to export certain articles because normally imports can be paid for only by exports. A country’s exports usually comprise commodities the cost of production of which is less than the cost of importing them. Thus the need of the people of a country for its scarce resources and in exchange the surplus of some of their resources constitute the import and export stimulate the foreign trade which is intern mobilized by foreign exchange proceedings. 3.2.1.3 Types of Foreign trades Dealt in Banks Foreign trades are mainly of two types. These two are: Import Trade & Export Trade. The import and export trade of Bangladeshis is controlled under the Import and Export Control Act, 1950. In normal sense the imports involve outward remittances and the export involves inward remittances. The terms and conditions of contracts between the importers and the exporters and the eventual remittances in


foreign countries are subject to such restrictions and formalities as are laid down from time to time by the Import and Export Control and Exchange control in their respective jurisdiction which the importers and exporters must comply with. Import Trade: When a particular country wishes and does bring in some goods and services from another country, trade occurring between these two countries is called import trade. Import trade means procurement and purchase of goods and services from another country or countries. Therefore, purchasing function of international trade is called import trade. Export Trade: Selling of goods and services or other sales related function for the transfer of surplus goods or services for a value or just to merchandise them abroad trade occur between countries. Thus export or sale of additional goods and services or surplus goods and services is called export trade. There is another peculiar type of export trade named Re-Export Trade. 3.2.1.4 Import The bank defines import as to bring in, from abroad, something in kind of goods or services (to behave lawfully). It includes the following services: 1. Letter of Credit (L/C) opening. 2. Presentation/Retirement of import documents. The import mechanism first involves the issuing of a L/C as an instrument by a bank on behalf of one of its customers, authorizing an individual or a firm to draw draft on the bank or on one of its correspondents for its account under certain conditions stipulated in the credit. Secondly the bank import mechanism involves the retirement of import mechanism on receiving the payment or under certain conditions against the security of payments made by the importer in documents stipulating an advance payment date. Import Operation Actually the import procedure is a result of a two-party negotiation or contract. Once the importer has accepted the supplier’s offer, he agrees to open a Letter of Credit in favor of the latter. Thus the import procedure of the bank starts with the opening of the credit. The entire import mechanism of this branch is enumerated below. Terms of Credit: First of all the concerned banker asks the importer to present and show the terms of the credit that the importer wishes to issue. The terms of the letter of credit are based on the contract between the


importer and the exporter and the import license or the authorization permits for import under free list as the case may be, issued in the named of the concerned importer. The terms of the credit specify importantly, amount of the credit, name and address of the beneficiary and the opener, particulars of the goods, their make, quantity and price basis, tenor of bill of exchange, period and mode of shipment, whether part shipment allowed, port of shipment and of destination, nature of credit, expiry date, names and number of sets of shipping and other documents. Letter of Credit Application: For the purpose of the opening the credit the importer is required to fill up and sign a stamped Letter of Credit application, which, in addition to recording the full details of the credit including instruction for booking exchange, serves as an agreement between the banker and the opener. Presentation of the application for Opening of the Letter of Credit: When the importer requests the bank for the opening of a L/C, by agreeing to the request, the bank makes a promise of payment to the supplier by issuing it. But the importer must make out an application for this purpose. The application must be written in a plain paper or Letter Head pad and it should be submitted being attached with the following certificates and papers: If the importer is an individual: 1. Current Deposit A/C No., 2. Partnership Deed and Solvency Certificate (If partnership firm), 3. Article of Association (If Private Limited Company ), 4. Memorandum of Association (If Private Limited Company), 5. Certificate of Commencement of Business (If Public Limited Company), 6. Photocopy of Trade License (valid), 7. Photocopy of VAT Registration Number, 8. Photocopy of Tax Identification Number (TIN certificate), 9. Import Registration Certificate from CCI&E, (Renewed and valid). 10. Required amount of Registration Fee. IRC (Import Registration Certificate) issue fee: IRC Issuing Fee Import Limit Tk. 500 Highest annual imports limit 5 Lac. Tk. 1500 Highest annual imports limit 15 Lac. Tk. 3000 Highest annual imports limit 50 Lac. Tk. 5000 Unlimited annual import capacity. Bank Scrutiny of the Documents before Opening of the Credit:


On receipt of the application form with other required documents submitted by the opener they are thoroughly scrutinized. The points, which are carefully scrutinized, are followings: 1. Indenting the registration number. 2. That the IRC is updated or renewed and valid. 3. That the goods are marketable and legally importable and that it is not difficult for the beneficiary to comply with all terms and conditions to be incorporated in the L/C. 4. That the L/C is not going to be opened in favor of the importer. 5. That the importer signs it, agreeing terms and conditions. 6. That the Insurance Cover Note specifies the date of shipment. 7. That it encloses Radioactivity Report in case of food item. 8. That the Import Permission (IMP) forms is dully filled in and signed. 9. That the liability, as being applied, is under appropriate limit. 10. That the amount does not exceed the L/C value and is identical with invoice amount and that the amount in figure and in word is same. 11. That it encloses credit report of the beneficiary in cases when the L/C value is more than US $ 20,000. 3.2.1.5 Export Exports, for obvious reasons, are listed in the priority sector in all developing economies. There is no doubt in this fact that export trade constitutes the most substantial base for sustaining the long term development and prospect of a country’s economy. Bangladesh is also now a developing country. So this fact is equally relevant to the concerned economic soundness of Bangladesh. We all know about the ‘Balance of Payment’. If a countries total import outweighs its total export, the country is called to be facing drastic negative (unfavorable) balance of payment. A continuous negative balance of payment of country makes it totally dependent on others. And thus the economic standing and structure of that country gradually collapse. On the other hand a positive (favorable) balance of payment shows the greater amount of export by a country against its total import and shows a sound economic motion. Thus export is a most import mechanism that helps a country to be dependent and to produce goods or merchandise either through its internal resource or through procuring resource from external sources. Whatever the source is the export helps a country to build its capital reserve more promisingly. Bangladesh is also now very much keen to boost up its export. But the most stumbles’ blocking the process is the non-availability of required finance. There is neither adequate capital in the hands of the exporter to meet up their foreign trade requirements nor their exists an organized capital market to extend fair hand as help for the finance. In view of this, commercial banks of this country are the only real friendly base, which recently have started playing a challenging and pivot role in the business sector through extending both pre and post trade finance to the exporters and importers.


Export Policy 1997-2006: Target: 1. To attain highest national growth by increasing export to regional and international markets; 2. To reduce gradually the gap between export and import expenditure; 3. To produce export commodity at a competitive price aimed at market retention and promotion; 4. To avail the opportunity to enter in liberalized and globalize ‘Post-Uruguay Round International Market’; 5. To make goods exportable and more suitable for foreign markets by diversification and quality improvement; 6. To establish backward linkage industry and services and identify higher value added goods; 7. To develop infrastructure for exports; 8. To create skilled manpower in export sector; 9. To upgrade the quality and grading of commodity to an internationally recognized level. The normal export mechanism is much like the procedure maintained in a typical import mechanism. Whereas in case of import the party is the importer and the bank acts as the opener of his credit, in case of export the party is the exporter and the bank acts as the negotiator of his documents. In our country the most promising exporters are the garments industries. About 76% of the total exports of our country are made by the garments sector. The underlying reason of success of this sector in exports is the availability of the huge amount of cheap labor. But because of inadequate supply of locally produced quality fabrics and accessories, we have to import about 60% of the fabrics and accessories from abroad for use in the garments industry. This is actually a time consuming and costly process for the garments sector. So considering the significant contribution of the garments sector in the export trade the private commercial banks have undertaken an especial arrangement to provide them with export finance, which is called the foreign Back to Back Letter of credit (BTB). BANK MECHANISM IN EXPORT As stated earlier, the foreign trade plays a vital role in the economic advancement process of nation. So the trend or parameters of foreign trade i.e., import and export is of great concern to the government of a country. By the term ‘Export’ we mean carrying of anything from the country of origin to another country in return for a value. The bankers define ‘Export’ as the sending of visible things outside the country for sale. The export is important because with the export earnings we met our import bills. Normally a bank provides the following services as with the party in case of export needs. Obtaining of Export Registration Certificate (ERC):


When the party or the exporter receives any export order after negotiation with the importer, he comes to the bank and asks negotiate his transaction with the importer’s correspondent. In such a case the bank first advises him to obtain Export Registration Certificate from CCI&E (Chief Controller of Import and Export). Procedure for obtaining ERC: For obtaining Export Registration Certificate (ERC), intending Bangladeshi Exporters are required to apply to the Controllers/Joint Controller/Deputy Controller/assistant Controller of Imports and exports in the prescribed form along with the following documents: 1.Nationality and Assets Certificate of the Proprietor/Partners/Directors; 2.Registered Partnership Deed in case of Partnership Concerns; 3.Memorandum and Article of Association and Incorporation Certificate in case of Limited Company; 4.Bank Certificate; and Income Tax Certificate; 5.Copy of valid Trade License and 6.Copy of Rent Receipt or the Business Premises. On receipt of necessary advise from the Offices of the concerned Controller of Imports and Exports, applicants of Export Registration Certificate are required to deposit Registration Fee of Tk. 1000 (subject to change) in to the Government head of account “24- Trade and Commerce-Fees Realized under Import and Export Control Act, 1950” through Bangladesh Bank or Government Treasury Sonali Bank. Copies of Treasury Challans showing payment of fees should be sent to the concerned offices of the CCI&E for enabling them to issue Export registration Certificate. Once it has been registered, the exporters are to make annual payments of Tk. 1000 (subject to change) only for having the ERC renewed. Receiving Advising of Letter of Credit: Normally the exporter receives Letter of credit in two forms: 1. Cable 2. Original The imported terms and conditions of the L/C are communicated by the L/C opening bank to the exporter’s bank through cable, which is followed by the original L/C. The L/C received through cable generally covers the following points: 1. The name of the importer; 2. The name of the exporter; 3. Description of goods (in short detail); 4. Expiry date of the Letter of Credit; 5. Shipment date, etc.


Issuing of EXP (Export) Form: After the receipt of the advising bank’s letter, the exporter is required to issue an Export Form by the Authorized Dealers. The ‘EXP’ Forms are numbered serially and issued in quadruplicate. Before the export forms are lodged by the exporters with the Customs/Postal Authorities, they should get all the copies endorsed by the Authorized dealers. For delay in repatriation of export proceeds or nonrealization of export proceeds, the exporters render themselves for action under Foreign Exchange Regulation Act, 1947. Authorized Dealers and their officials who certify the export forms also render themselves on such action by the Bangladesh Bank. Examination of the Documents: After the issuing of the ‘EXP’ form the exporter proceeds for the shipment of the goods to the buyer’s destiny. As soon as the shipment of goods is made, the exporter prepares the bill of exchange and submits it with other export documents to Authorized Dealer for negotiation of the same. As the banker deals only with documents not with the commodity, they should be very much careful about the genuineness and correctness of the documents evidencing shipment of the respective commodities. The banker is to ascertain that the documents are strictly as per the terms of L/C. before negotiation of the export bill, the banker is to scrutinize and examine each and every document with great care. Negligence in the part of the banker may put the importer abroad into unnecessary troubles. 3.2.1.7 DOCUMENTS USED IN FOREIGN TRADE RELATING TO BILLS Every import and export involves documentary transaction of goods and services between or among the parties involved (or between or among their supporting banks). Most of the foreign trade and their exchanges are now held in the form of documentary Letter of Credit (LC). Documentary letters of credit issued to finance the shipment of goods involve the drawing of bills of exchange, which have to be accompanied by what is known as “full set of shipping and non-shipping documents”. The attachment of these documents to the bill is an essential obligation of the seller and the buyer so as to serve the purpose. These typical documents can be divided into two main parts. These documents are Shipping documents and Non-shipping documents. These documents are the followings: Shipping Documents: Shipping documents are those documents, which are mainly given by the exporter to the importer after the shipment of the goods or services as been negotiated. It is impossible to release the goods or commodity from ship/port without these documents. These documents are described below: Bills of lading: The bill of lading is one of the most important shipping documents, which accompany bills of exchange drawn under letters of credit. It is an evidence of the fact that the exporter has dispatched the goods and gives the exporter title to the goods and enables him to collect them on arrival at the destination.


The bill of lading is more like a transferable debenture. It is a document signed and issued by the shipping company or its agent acknowledging the receipt of specified goods for carriage and embodying an undertaking that the goods will be delivered to a consignee named in the bill, or to his order or assigns, or merely to order. The document specifies the port of shipment, the destination, and the conditions under which the goods are received for carriage. “Clean” and “Claused” Bill of Lading: A bill of lading that indicates that the goods are in apparent good condition without any without any qualification is known as a “clean” bill of lading. If, on the other hand, it bears some remark relating to a defect in packing, such as ‘three bags torn’, ‘some cases broken’, ‘received in dampened condition’, ‘goods not sufficiently packed’, etc., it is known as a “foul” or “dirty” bill of lading. It is also known as a “claused” bill of lading. A “claused” bill of lading is not an acceptable document, unless specifically provided for in the sale and purchase contract. Such remarks protect the carrier against any claim for losses attributable to bad packing. They also protect every one else who comes in possession of the bill of lading for value. “On Board” and “Received for Shipment” Bill of Lading: When shipping space is ample and sailings are regular this type of certificate is easy to get. An “on board” bill of lading is satisfactory from the viewpoint of the all the parties concerned. The consignor is assured that the goods have been loaded and will reach the destination. The consignee has equal assurance when he receives the documents that the goods will arrive in time and will be available to him on surrender of the documents. “Received for shipments” bills of lading have, therefore, vital lacunae and are not acceptable to buyers and bankers. The buyer receives the documents but may not be sure that he will get the goods in time. The merchandise may consist of perishable goods, which, if delayed in transit, may not remain saleable. Buyers and banks, therefore, ask for “on board” bills of lading.

“Through” Bills of Lading: Sometimes, when goods are carried overland and overseas, or during the sea voyage have to be transshipped at an intermediate port, the carrier that takes the goods first issued a “through” bill of lading. A railway company may issue a “through” bill of lading that serves both as a railway receipt and some kind of bill of lading for the sea voyage. Such a document, however, lacks authority to bind the ship owner who undertakes the sea portion of the carriage. This kind of the bill does not provide any assurance that actual shipment on the named vessel took place. The banker has a right to reject such a bill in connection with a credit, which calls for delivery of a bill of lading, unless there is a specific authorization for its acceptance. “Straight” and “Order” Bill of Lading:


A “straight” bill of lading is one, which is made out in the name of a consignee. At the port of destination it is not necessary to present a straight bill of lading to take the delivery of goods, except where it is necessary for the purpose of identification. An “order” bill of lading is one, which is made out to the order of the consignor or supplier. It can be transferred by endorsement to other parties. Such a bill of lading usually contains a condition directing the shipping company to notify the consignee when the goods arrive. Charter Party Bills of Lading: This is a contract for the hire of whole ship or part of a ship setting forth in detail the rights and obligations of the owners and liners or chatterers. Charters are usually arranged by “ship brokers”. They are for their services charging a small commission on the total amount agreed upon for hire. Charters are divided into “time” charters and “voyage” charters. The former is for specified period of time, while the latter is for particular voyage. A charter party specifies, among other details, the particular ports to which the ship is to go, the cargo to be carried, and the freight to be paid for the hire of the ship. Stale Bill of Lading: A bill of lading is said to be “stale” if it bears a date subsequent to the expiry date of the credit under which the goods are shipped. It shows that the goods were put on board the vessel on a date later than that authorized under the credit. A bill of lading may also be considered stale if it is presented so long after the sailing of the carrying vessel that the goods will be reaching the port of destination long before the buyer will get possession of the goods when they arrive at destination. Insurance Policy: There are many risks involved in the import and export business as the goods are shipped and travel thousands of miles and often more than that to the buyer’s destiny. There are obvious risks of damage, loss, or destruction of goods during transit by sea, air or by road. For this reason, the buyer asks insurance of goods to be shipped to him from the exporter or seller of them. Insurance policy is a kind of agreement between exporter and Insurance Company to reduce the risk. Exporter sends this document with shipments to the importer. Marine Insurance Policy: A marine insurance policy is a contract between the insurer and the insured whereby the former, in consideration of the payment of a premium by the latter, agrees to indemnify the latter against loss incurred by him in respect of goods exposed to “perils of the sea” or to the particular perils insured against. The marine insurance is the responsibility of the buyers (consignee) under F.A.S., F.O.B. and C&F contracts and of the seller (consignor) under C.I.F. contract. The sum insured should be the C.I.F. value of the goods. Where the C.I.F. value cannot be ascertained the amount should not be less than the amount of the drawing under the credit or invoice value of the goods. Like a bill of lading it must be negotiated and endorsed where it is payable to order. Bill of exchange:


The Payment for the goods exported under a letter of credit is received by the seller or exporter through the medium of a bill of exchange (commonly called bill or draft) drawn on the buyer for the amount depending on the credit. It is known as a documentary bill when it is drawn under a documentary credit and hence is accompanied by other shipping documents. Through this bill of exchange the exporter orders the importer to pay the value of the goods shipped through this document. Importer or the respective bank acting on behalf of the importer must sign on this document. The bill is usually drawn in duplicate of sets of two with the original copy being known as the First of Exchange and the duplicate the Second of Exchange. Invoice: The invoice is the important document of the letter of credit. It is the seller’s bill for the merchandise. In other words, the invoice is a document containing the description of the goods shipped, their marks, make, quantity, and prices, charges for packing, freight, insurance etc. as are applicable as per terms of the contract as well as the name of the carrying vessel and the date of sailing. There are different types of invoices in use. Such as: The Commercial Invoice: The commercial invoice is a statement of accounts drawn by the seller address to the buyer giving the details of the amount stated therein which is based on the terms of the contract entered into between the buyer and the seller. The exporter must dully sign a commercial invoice. Details found in a typical commercial invoice are name and address of the buyer and the seller, the vessel of shipment, port of discharge etc. Also the shipment import and export permit numbers, the number of contract and invoice and other essential details of the transaction are recorded on the invoice. The financial terms of the sale, such as whether under letter of credit, sight drafts etc., are given. The number of packages and the identifying mark and numbers of them are clearly indicated. The goods contained in the packages are detailed and prices are given item by item. The commercial invoice is neither a document of title, nor it is negotiable. Its main utility is that it acts as a bookdevice for both seller and buyer. The Consular Invoice: Another special type of invoice named consular invoices are required depending upon the trade regulations in importing country. It is made out in a prescribed format, certified and signed by an individual of the importer’s country national working as a consulate in the exporter country. In some cases it is also seen that exporter’s own invoice is authenticated by the embassy or consulate instead of issuing consular invoice. This type of invoice is called legalized invoice. The Certified Invoice: Certified invoice is an invoice, which bears a signed statement, by someone in the importer’s country who have inspected the goods and found them in accordance with those specified in the contract.


The Certificate of Origin: The regulations in force in some countries require a certificate of origin of imported goods to be produced before clearance of by customs and assessment of duty. The certificate is usually required where goods from certain countries receive preferential treatment, or the import of goods from some countries is partially or wholly prohibited. This is generally issued by the Chambers of Commerce of the exporting country and is arranged by the exporter. Sometimes, the certificate of origin is endorsed on the back of the relative invoice, in which case the whole document is known as a “certified invoice”. The Packing List: A packing list serves to indicate the exact nature, quantity, and quality of the contents of each package in a shipment. The list helps the importer to identify the goods and check them against his order. Banks may require such a list when they have financial interest in the merchandise. Clearance of goods through customs is also facilitated by packing list. The Other Certificates: Some other certificates are also required with of particular commodities. A “weight certificate”, signed by a public agency, is often necessary with goods sold in bulk, such grains, oils and similar products. The importing country may insist on a “food inspection certificate” from an official inspecting service of the exporting country when certain foodstuffs of perishable nature such as meat, edible fats etc., are imported. A “non- dumping certificate” showing the comparative difference in the domestic and export selling prices, is sometimes required with imports in some countries to ensure that goods are not being sold at very much lower prices in the importing countries than the domestic markets of the exporting country.

Inspection Certificate: This is normally issued by an independent inspection company located in the exporting country certifying or describing the quality, specification or other aspects of the goods, as called for in the contract and/or the L/C. Quality Control Certificate: Sometimes the sale contract may demand a certificate issued by a standards institute or quality control agency in the exporting country indicating the quality of the merchandise shipped. This is known as a quality control certificate. GSP Certificate:


When tariff concession is sought from those developing countries providing preferential treatment to exporters of the developing countries, a GSP certificate should be obtained from the Export Promotion Bureau (EPB). Besides the usual shipping documents required under the Letter of Credit or a contract entered into, the shipping documents in our country are incomplete without being supported by Exchange Control Forms. These Exchange Control Forms are known as GRPP Forms, which are completed and submitted by the exporter to the customs authorities at the time of shipment. Non-shipping Documents: There are a number of other documents, which have importance in dispatch of goods in foreign trade. A brief discussion on these documents is given below: The Documentary Letter of Credit: A Letter of Credit is issued by a bank (Issuing Bank) at the request of an importer (applicant) in favor of an exporter (beneficiary) from whom the importer has contracted to purchase some commodity or commodities. The importer, the exporter, and the issuing bank are, thus, obviously parties to a Letter of Credit. There is, however, one or more than one bank that is involved in various capacities and at various stages to play an important role in the total operation of the credit. The Ships Reports: In the ship’s report the following information is found: (a) The name of the ship. (b) The name of the registered port and the registration number. (c) Nationality of the ship owner or the name of the state belonging to the ship. (d) The name of the loading port. (e) The name of the captain of the ship or the principal of the ship. (f) Number of the employees and the officers of the ships. (g) Reports of things used by the employees, captain and officers of the ship. (h) Detail reports of the transported merchandise. (i) The name and address of the exporter. 3.2.1.8 FINANCIAL ASSISTANCE PROVIDED BY THE BANKS In international trade the most two important terms are the export and the import. As the mostly dependable financial institution banks are in a position to provide sufficient financial assistance to the importer and more commonly the exporter so as to conform smooth flow of a large bulk of foreign trade.


Now a day, both the importers and the exporters of our country receive and/or enjoy a considerable amount of financial assistance from commercial banks and other financial institutions. Pre-Shipment Finance: Pre-shipment finance in taka, more popularly known as ‘Packing Credit Advance’, is short-term working capital finance specially provided to an exporter against the documentary evidence of having entered into export commitments. The packing credit is granted at a pre-shipment stage, i.e., at the stage prior to the goods being shipped and the credit is given for procuring raw material, for paying manufacturing and packing charges and payment of insurance premium and freight. As and when the goods are shipped and shipping documents are obtained, the pre-shipment finance is to be liquidated against the proceeds of export documents tendered. Post-Shipment Finance: The post-shipment finance is the financial facility extended by the banks after the goods have been shipped and against the submission of export documents evidencing the dispatch of goods. Postshipment finance portfolio is in existence since the day international trade has been known, but more precisely after the First World War. After that the international trade is ever increasing, and the shipping documents against which the exporters are getting financial facilities are well accepted. 3.2.2 FOREIGN REMITTANCE According to Foreign Exchange Regulation Act 1947, the commercial banks or the authorized dealer who has the Bangladesh Bank authorization can do Foreign Exchange. According to this Act, TC (Traveler Cheque), Drafts are included in Foreign Exchange. SIBL, Foreign Exchange Branch provides its customer with the foreign remittance facilities by issuing Foreign Demand Drafts, Traveler Cheque, Endorsing passport for cash etc. 3.2.2.1 Traveler’s Cheque: It is the safest way to carry money from one country to another. It can be change in any country of the world. Even if the Traveler Cheque (TC) is lost then the holder of the T.C can inform it to the bank and the bank will inform it to the agencies so that no one can en-cash the T.C while issuing a Traveler Cheque (T.C) a signature is needed, so that no one can en-cash it except the holder and also another signature is needed in encashment in front of the banker. So Traveler Cheque (T.C) is the safest way to carry out side the home country. A customer is permitted to endorse maximum US$ 3000 per year for travel in countries other than SAARC countries and US$ 1000 for travel in SAARC countries. If SAARC countries are to be visited by road then maximum US$ 500 can be endorsed per passport per year. At a time cash cannot be endorsed over US$ 500. Issue of Travelers Cheque: There are some requirements, which are to be fulfilled by the TC publisher: 1. Passport holder himself to be present to issue TC purchasing.


2. The passport has to be a valid one. 3. Air ticket has to be confirmed. 4. Steps involved in issue of TC: 5. After verifying all these documents, the customer as asked to fill up prescribed application form. 6. In the application the customer states the amount he is willing to endorse and it is to be verified that his required amount is within the stipulated amount. 7. Then the customer pays cash or by debiting hid account the Travelers Cheque is issued. 8. Endorsement is given on the passport and on the ticket. Customer fills up the Travel and miscellaneous form. 9. Purchase application form is prepared and handed over to the purchaser along with the Traveler Cheque. 10. Entry is given in three registers: Foreign Currency Issue Register, Travelers Cheque “On Hand” Register and Foreign Currency “In Hand” Register. Payment of Travelers Cheque: When a customer wants to encase his TC, he has to show his passport and it is to be verified from the passport that he has traveled outside the country. Then 1. The TC will have to be scrutinized very strictly; 2. If everything in the TC is in order then the customer will be asked to give signature on the place of “Counter Signature”; 3. If the signature agrees with the one in place of “the signature of the holder” then the payment will be made through giving cash to the customer or crediting his A/c; 4. Travelers Cheque will be crossed and endorsement given on the back of the received TC.

3.2.2.2 Endorsement of Cash Cash Foreign Currency can also be remitted through endorsement in the passport. In case of endorsing cash on passport, the requirements are same as in case of traveler’s cheque. But the only exception is that the passport holder is not required to be present by himself. 3.2.2.3 Foreign Currency Account The accounts maintained in foreign currencies are known as foreign currency account. The Authorized Dealers may open foreign currency accounts in the names of followings without prior approval from Bangladesh Bank. a)Bangladesh nationals residing abroad.


b) Foreign nationals residing in Bangladesh and also the foreign firms registered abroad and operating in Bangladesh or abroad. c)Foreign Missions and their expatriate employees. Branches are mainly deals with two types of foreign currency accounts, namely: a)Non-Resident Foreign Currency Deposit Account (NFCD). b) Resident Foreign Currency Deposit Account (RFCD). Non-Resident Foreign Currency Deposit Account (NFCD) All nonresident Bangladesh nationals and persons of Bangladesh origin including those having dual nationality and ordinarily residing abroad, may maintain interest bearing time deposit accounts named “Not-Resident Foreign Currency deposit (NFCD)�Accounts with the Ads. Eligible persons: a)Bangladesh nationals working and earning abroad. b) Bangladesh nationals serving with Embassies /High Commission of Bangladesh in foreign countries including officers/Staff of Govt. /Semi Govt./Autonomous/nationalized sector posted/Deputed abroad. c)Shore staff posted abroad (Crew of BSC not entitled). d) Foreign nationals and companies registered and /or incorporated abroad, institutional investors and 100% (Hundred Percent) Foreign owned industrial unit of EPZ (Minimum Amount USD 25000/- or equivalent). Resident Foreign Currency Deposit (RFCD): Ordinary resident of Bangladesh may open and maintain Resident Foreign Currency Deposit (RFCD) accounts with foreign exchange brought-in at the time of their return from travel abroad. Any amount brought in with declaration to Custom Authorities in form FMJ and up to US$ 5000/- brought in without any declaration can be credited to such accounts.

Deposit: The depositors must submit a declaration mentioning the date of return from abroad and the amount of Foreign exchange brought in at the time of crediting to RFCD account to the effect that Foreign exchange (i) is not a receipt against export of goods or services from Bangladesh (ii) is not a commission due from abroad arising from business in Bangladesh. 3.3. CREDIT BANKING AREA One of the core functions of commercial banks is to create the claim against individual borrower or real the purpose of sanctioning credit. Bank grants loan in the form of different securities. By the primary security, we mean the financial claim of holder against the real sector of economy. In banking


the sector, the financial claim of bank against issuer, (called investors, borrowers and deficit units). This core function of a bank is performed by the credit department of the bank. In this case, the relationship of bank and customer is that of the creditor and debtor. 3.3.1. Types of loans and Advances offered by SIBL: Types of advances Secured Overdraft (SOD)

Code 14

Interest rate 11.25%-16%

House Building Loan 12 (staff) House Building Loan 24 (General) Transport Loan (Staff) 32

7%

Features Continuous advance facility given for one year but can be renewed after the expiry of the time. Given against I.C.B. unit, FDB, Sanchaypatras and Work Orders. Given against Personal guarantee, Hypothecation of goods and land and building. Given against Personal guarantee, land and building.

Loan (General)

13

12%-16%

12.75%-16%

Given against Personal guarantee, land and building.

7%

Transport Loan (General)

17

15%

Demand Loan

16

7%-14.5%

Industrial Credit

22

12.5%-16%

Cash (Hypothecation)

Credit 18

Given against Personal guarantee and Hypothecation of vehicles. Given against Personal guarantee and Hypothecation of vehicles. Given against Personal guarantee, and cash collateral securities. Given against land and building along with machinery, Personal guarantee of Directors and Hypothecation of raw materials. A short term arrangement by which a customer is allowed to borrow money up to a certain limit is sanctioned by the bank for a certain time. Given against Registered mortgage of land and building, hypothecation of goods and personal guarantee of Directors. Given against Bills Receivables. Advance allowed for retirement of shipping documents and release of goods imported through L/C. The goods are handed over to the importer under trust with the arrangement that sale proceeds should be deposited to liquidate the advances within a given period. Given against Bills Receivables, hypothecation of imported goods, Trust receipt, personal guarantee, and registered mortgage of land and building.

Past Due Bills Loan against Trust Receipt (LTR)

31 15

11%-16%

15% 11%-15%

3.3.2. Procedure for Giving Advance: 1) The potential borrower will submit application to SIBL for loan by filling up of a specific Application form. The Application form (request for Credit Limit) contains following particulars: a) Name of the Borrower----b) A/C No.------------c) Bunnies address (with telephone no.) [Residential address and Permanent address]-------d) Introducer’s name, A/C no. & address----e) Date of establishment/ incorporation------


f) Trade license number, date and expiry date (Photocopy of trade license enclosed)-------g) GIR/TR no. & amount of income tax paid last year-----h) Constitution/ Status (Mention whether sole proprietorship/ partnership/ Public Ltd. company/ Private Ltd. company)-------i)

Particulars of individual/ Proprietor/ Partners/ Directors (Name & Designation, father’s/ Husband’s name, present & permanent address with Telephone no., % of shares held)-------

j)

Experience and background of Individual/Proprietors/ Partners/ Directors--------

k) Full particulars of assets in the personal name of Individual/ Proprietor/ Partners/ Directors with valuation----------l)

Names of Subsidiaries/ Affiliates, percentage of share holding and nature of business---------

m) Nature and details of business/ products (for which credit facility is applied for), Markets (Present market price per unite, Factory price), Estimated sales for next one year............ n) Credit facilities required (type, amount, period, purpose, and mode of adjustment).......... o) Details of securities offered with estimated value (Primary security, Collateral security, market value of the security).......... p) Details of liabilities in the name of the client or in the name of any other partners/Directors or Subsidiaries/Affiliates Nature of advance, amount, security and validity of limit)..... q) Balance Sheet/ Income Statement of Statement of Accounts of the following years attached (Preferably last 3 years)........ r) Other relevant information......... s) Proposed debt/equity ratio......... t)

Signature of the Applicant..............

2) After receiving the loan application form, SIBL sends a letter to Bangladesh Bank for obtaining a report from there. This report is called CIB (Credit information Bureau) report. This report is usually collects this report if the loan amount exceeds Tk. 50 Lac. But SIBL usually collects this report if the loan amount exceeds Tk.10 Lac. The purpose of this report is to being informed that whether the borrower has taken loan from any other bank; if ‘yes’ then whether these loans are classified or not. 3) After receiving CIB report if the Bank thinks that the prospective borrower will be a good borrower, then the bank will scrutinize the documents. In this stage, the Bank will look whether the documents are properly filled up and signed. 4) Then comes processing stage. In this stage, the Bank will prepare a Proposal contains following relevant information....... a) Name of the Borrower---


b) Nature of Limit----c) Purpose of Limit-----d) Extent of Limit--e) Security--f) Margin--g) Rate of Interest------h) Repayment------Branch incumbent (Local Office Br.) has the discretionary power to sanction loan (SOD) up to Tk. 25 Lac against financial obligations by informing Head Office. But in that case, the Branch Manager has to give attention to the following matters: -

The interest rate of the loan must not be less than 4.5% and

-

The borrower must maintain 10% margin.

Except this case, the branch has to send the proposal to the Head Office. Head Office will prepare a minute and submit it before the Executive Committee (EC). The minute has to be passed by EC. After passing the minute, it will be sent to Bangladesh Bank for approval in case of following: ........If the proposed limit exceeds 15% of Bank’s equity; .........If the proposed limit against cash collateral securities exceeds 25% of Bank’s equity. 5) After the sanction advice, Bank will collect necessary documents (charge documents). These documents are-------a) Joint Promissory Note b) Single Promissory Note c) Letter of Undertaking d) Loan Disbursement Letter

3.3.3. Feasibility Report: This report is from borrower’s point of view. He prepares this report and submitted to the bank. 3.3.4 Credit Line Proposal: In this step of the term loan the branch sends a credit line proposal to the head office for approval of the term loan. The credit line proposal contains the following particulars: •

Fresh/Renewal/Revision of the term loan

Borrower name

Types of business

Capital structure

Particulars of previous transaction

Movement of the accounts


Liabilities of sister concerns

3.3.5. Project Appraisal: It is the reinvestment analysis done by the banker before a project he approved. Project appraisal in the banking sector needed for the following reasons: •

To justify the soundness of an investment

To ensure repayment of bank finance

To achieve organizational goals

To recommend if the project is not designed properly

3.3.6. Techniques of Project Appraisal: An appraisal is a systematic exercise to establish that the proposed project is a viable preposition. The appraising officer checks the various details submitted by the promoter in first information sheet, credit application form, feasibility report. SIBL considers the following aspects in apprising: 1. Entrepreneur 2. Viability of the project: A. Technical viability (location and site of the project). B. Commercial viability (This study indicates evaluation of a project’s feasibility in terms of market). C. Financial viability. D. Economic Viability. E. Management and organization viability: 3.3.7 Lending Risk Analysis (LRA): Lending Risk Analysis (LRA) is a technique by which the risk of the loan is calculated. Banker must analyze LRA when loan application is above 1 core. This analysis is done by experienced people of Credit department in SIBL. It is a ranking whose total score is 140. Among this score, 120 is for Total Business Risk and 20 for Total Security Risk. In case of business risk, if the score falls--------Between 13-19, then------- Poor risk Between 20-26, then --------Acceptable risk Between 27-34, then-----Marginal risk Over 34, then ------ Good risk. In case of security risk, if the score fall-------Between – 20 to – 15 then -------------Between – 14 to 0, then ------------ Acceptable risk Between 0 to 10, then -------------Marginal risk Over 10, then -----------------Good risk.


In LRA, following aspects are analyzed-----------1) Supplies risk 2) Sales risk 3) Performance risk 4) Resilience risk 5) Management ability. 6) Level of Managerial teamwork 7) Management competent risk 8) Management integrity risk 9) Security control risk 10) Security risk cover. 3.3.8. Securities: SIBL charges the following two types of security, 1. Primary security 2. Collateral security. 3.3.9. Document and Documentation: A document is a written statement of facts of proof or evidence arising out of particular transaction which placement may bind the parties there to answerable and liable to the court of law for satisfaction of the change in question. The execution of documents in proper form and according to the law is known as documentation. Steps in documentation: • Obtaining the documents. •

Stamping (Stamp Act-1899)

Witnessing.

Execution of Documents.

Registration of Documents (assignment on the body of an insurance Policy, Mortgage deed, Advance to a limited company etc.)

Common Compulsory Documents: • Letter of Acceptance about the terms and conditions laid down in Sanction Advice. •

D.P. Note (Depending on the types of borrowers)

Letter of Arrangement.

Besides, there are other documents that are to be obtained depending on the types of Advance. Such asIn case of loan: 1. Letter of Disbursement. 2. Letter of Authority (if required) 3. Letter of Hypothecation (when goods are hypothecated as security) 4. Insurance Policy (if required).


5. Any other document as stated in Sanction Advice. In case of overdraft: 1. Letter of Continuity. 2. Letter of Authority (if required) 3. Letter of Hypothecation (when goods are hypothecated as security) 4. Insurance Policy (if required) 5. Any other document as stated in Sanction Advice. In case of cash credit: 1. Letter of Continuity. 2. Letter of Authority (if required) 3. Letter of Pledge/Hypothecation. 4. Insurance Policy under Bank’s Mortgage clause. 5. Letter of disbursement incase of renewed go down. 6. Any other document as stated in Sanction Advice. Transport Loan: 1. Letter of hypothecation of vehicles (in separate form) 2. Photocopy of blue book 3. Photocopy of rote permit 4. Insurance policy under Bank’s mortgage clause Legal Mortgage: 1. Mortgage deed (certified copy) 2. Registration receipt in 3. Chain of documents for title (original if available) 4. C.S,S.A and R.S parcha 5. Up to date Rent Receipt 6. Non-encumbrance certificate 7. Power of Attorney (if asked for) 8. Legal opinion 9. Valuation Certificate 10. Location plan etc./Site plan etc Equitable mortgage: 1. Chain of documents for title 2. original title deed 3. C.S, S.A A and R.S parcha 4. Up to date Rent Receipt 5. Memorandum of deposit of title deed 6. Registered power of Attorney 7. Legal opinion


8. Valuation Certificate 9. Location plan etc 10. Non-encumbrance Certificate 3.3.10 Credit Monitoring, Follow-up and Supervision: SIBL Officer checks on the following points: 1. The borrower’s behavior of turnover 2. The information regarding the profitability, liquidity, cash flow situation and trend in sales in maintaining various ratios. 3.3.11. Loan Classification: Like other banks, all types of loans of SIBL fall into following four scales: 1. Unclassified: Repayment is regular. 2. Substandard: Repayment is stopped or irregular but has reasonable prospect of improvement. 3. Doubtful debt: Unlikely to be repaid but special collection efforts may result in partial recovery. 4. Bad/Loss: very little chance of recovery. 3.3.12. Provision: Type of classification Unclassified Substandard Doubtful Bad debt

rate of provision 1% 20% 50% 100%

3.3.13 Statements Prepared by the Credit Department: •

Monthly Statements prepared by Credit Department for Bangladesh Bank.

Quarterly Statements prepared by Credit Department for Bangladesh Bank.

Monthly Statements prepared by Credit Department for Head Office.

3.3.14 Deviations between Theories and Practices: Following dissimilarities have been observed in the credit department: 1. In case of method of granting security against loan, hypothecation is much risky as compared with other charging security. But it is being used massively in SIBL Local Office Br. It is risky because neither the ownership nor possession is passed on it, only a right or interest in the goods is created in favor of the bank. Theoretically, bank provides two types of credit facilities--- direct facilities (funded) and indirect facilities (non-funded). But bank is being covered indirect facilities fully but not direct facilities. For example, Demand Loan is not available in bank practically.


2. In case of mortgage, only equitable and legal mortgage are commonly used as the charging security in immovable property but theoretically there are another types of mortgage like mortgage by the condition of sales, English mortgage, fractural and anomalous mortgage are not applied in practice. CHAPTER: 4 Online Banking I.T. is a well known word, meaning Information Technology. The developed countries of the world reached to the peak of information technology. SIBL have not alternative to expand of information technology. Tight now, SIBL are facing uneven competition with many foreign banks in the country. For this, SIBL will have to take necessary preparation form this moment. Information Technology and Flow of Information is become very important in the present world. Social Investment Bank needs to develop all their banking transaction with the help of this technology and need to introduce online banking. 4.1 What is Online Banking? Most people heard a lot about online banking but probably haven't tried it themselves. People still pay their bills and deposit checks at bank’s branch, much the way their parents did. They might shop online for a loan, life insurance or a home mortgage, but when it comes time to commit, people can feel more comfortable working with his banker or an agent they know and trust.Online banking isn't out to change one’s money habits. Instead, it uses today's computer technology to give people the option of bypassing the time-consuming, paper-based aspects of traditional banking in order to manage finances more quickly and efficiently.

4.2 Origin of Online Banking The advent of the Internet and the popularity of personal computers presented both an opportunity and a challenge for the banking industry. For years, financial institutions have used powerful computer networks to automate millions of daily transactions; today, often the only paper record is the customer's receipt at the point of sale. Now that its customers are connected to the Internet via personal computers, banks envision similar economic advantages by adapting those same internal electronic processes to home use. 4.3 Brick-to-Click Banks Today, most large national banks, many regional banks and even smaller banks and credit unions offer some form of online banking, variously known as PC banking, home banking, electronic banking or Internet banking. Those that do are sometimes referred to as "brick-to-click" banks, both to


distinguish them from brick-and-mortar banks that have yet to offer online banking, as well as from online or "virtual" banks that have no physical branches or tellers whatsoever.The challenge for the banking industry has been to design this new service channel in such a way that its customers will readily learn to use and trust it. After all, banks have spent generations earning our trust; they aren't about to risk that on a Web site that is frustrating, confusing or less than secure. Most of the large banks now offer fully secure, fully functional online banking for free or for a small fee. Some smaller banks offer limited access or functionality; for instance, you may be able to view your account balance and history but not initiate transactions online. As more banks succeed online and more customers use their sites, fully functional online banking likely will become as commonplace as automated teller machines. 4.4 Virtual Banks If anybody don't mind foregoing the teller window, lobby cookie and kindly bank president, a "virtual" or e-bank may save very real money. Virtual banks are banks without bricks; from the customer's perspective, they exist entirely on the Internet, where they offer pretty much the same range of services and adhere to the same federal regulations as corner bank. Virtual banks pass the money they save on overhead like buildings and tellers along to you in the form of higher yields, lower fees and more generous account thresholds.

4.5 SIBL will get Advantage from Online Banking •

Convenience: Unlike a corner bank, online banking sites never close; they're available 24 hours a day, seven days a week and they're only a mouse click away.

Ubiquity: If anybody out of state or even out of the country when a money problem arises, he can log on instantly to his online bank and take care of business, 24/7.

Transaction speed: Online bank sites generally execute and confirm transactions at or quicker than ATM processing speeds.

Efficiency: One can access and manage all of his bank accounts, including IRAs, CDs, even securities, from one secure site.

Effectiveness: Many online banking sites now offer sophisticated tools, including account aggregation, stock quotes, rate alerts and portfolio managing programs helps to manage all of


the assets more effectively. Most are also compatible with money managing programs such as Quicken. 4.6 Feature that can be gives in SIBL Online Banking o Making payments

o Tracking payments o Stop payments by block cheque o

Review personal account details, including balances and transactions

o

Pay bills online with the optional Online Bill Payment service

o

View images (front and back) of cleared checks and deposit slips

o Receive e-mail notifications to alert to selected account activity o

Schedule single one-time transfers or multiple transfers

o

Set up email notifications to be sent for balance amounts, specific checks cleared or maturity dates

o

Transfer money

o

Open Accounts

o

Apply for loans

o

Make loan payments

CHAPTER: 5 PERFORMANCE ANALYSIS 5.1 Performance Of The Bank (SIBL): A brief review of the activities: Take this opportunity to place before you the present overall operational activities of the Bank as follows: a) Alhamdulillah during 2007 Bank has made a net profit after tax of Tk.150, 037,061 million after providing provision as per requirements of Bangladesh Bank. Business performance of 2008 shall be much better, inshallah.


b) The growth rate in formal sector-Deposit in 2007 was significant, based on actual expected growth rate of deposit in 2008would be much better. c) Banking with the poor (that is mainly with street children and poor family) under micro credit and micro enterprise under family empowerment credit program activities is increase very rapidly. Deposit: Deposit of the Bank was increased to Tk.19, 753,940,163 million during 2007 against total deposit of Tk. 16,170,514,627 million in 2006, compared to growth rate of 22.16 % in the Banking Sector of the country. In view of the fact that the main target group of SIBL is lower and middle class people, this model of Banking is capable of absorbing abnormal fluctuation of stock market due to this target group of depositors. Investment: Bangladesh experienced worst flood in the century and volatile economic situation during the year under report, investment activities stood Tk16,440,259,305 million in various sector as at the end of 31st December, 2007.as against Tk.15,312901,478 million in 2006 Alhamdulillah, there was no as such overdue or classified investment as at 31st December, 2007. Liquidity: Liquidity maintained in the from of cash in hand and balance with Bangladesh Bank including foreign currency notes stood at Tk.1,702,267,359 million as at

31 st

December, 2007 against Tk.

1,384,245,001 million last year. Total liquidity increased was Tk.318022358 million. Balance held with other banks stood at Tk.4, 602,084,949 million as on 31 st December, 2007 as against Tk 1, 572,218,612 million last year. Foreign Exchange Business: Foreign Exchange Business stood at Tk.23903.80million in 2007 as against Tk.23280.00 million in 200. The breaks up of foreign exchange business are as follows:

Particulars Import Export Remittance

2002 11124.85 2287.64 107.57

2003 14908.90 4035.90 120.30

2004 13363.07 4500.23 224.82

2005 11576.71 5528.40 332.96

Taka in million 2006 2007 11791.00 13482.30 10714.00 9961.60 775.00 459.90

Growth Rate 14.34 % -7.02 % -40.65 %

Total

13520.07

19065.10

18088.12

17438.07

23280.00

2.67 %

Source: Annul report of SIBL (2002, 2003, 2004, 2005, &2006)

23903.80


25000 20000 15000 F.Exchnage Business

10000 5000 0

2002

2004

2006

5.1.1. DEPOSIT: The deposit of Social Investment Bank Limited has rapidly increased from 2006 to 2007. The deposit of SIBL in 2006 was Tk. 16,170,514,627 million where it was Tk19, 753,940,163. Million in 2007. Table-1 Year 2002 2003 2004 2005 2006 2007

Deposit in million taka 15141.332 19709.31 19704.16 16,862.57 16,170.51 19,753.94

Source: Annul report of SIBL (2002, 2003, 2004, 2005, &2006)


25000 20000 15000 Deposit 10000 5000 0 2002

2003

2004

2005

2006

2007

20.00% 10.00% 0.00% IMPORT -10.00%

EXPORT

REMITTANCE

-20.00%

Growth Rate

-30.00% -40.00% -50.00%

5.1.2 INVESTMENT Investment of SIBL is increasing rapidly. In the year 2007 the amount of investment was Tk. 16440.25 million which was Tk. 15312.90 million in 2006. Table-2 Advance in million taka Year 2003 10059.11 2004 12887.27 2005 15096.83 2006 15312.90 2007 16440.25 Source: Annul report of SIBL (2003, 2004, 2005, 2006, &2007)


18000 16000 14000 12000 10000 8000 6000 4000 2000 0

Investment

2003 2004 2005 2006 2007

5.1.3 COMPARATIVE GROWTH IN DEPOSITS AND INVESTMENT: The growth rate of deposit in 2007 was 22.16 % where the growth rate in investment was 7.36 % in 2007. The growth rate in Deposit was higher than the growth rate deposits in 2006. 5.1.4 IMPORT BUSINESS: The import business of SIBL Tk. 13482.30 million in the year 2007 that was Tk. 11791 million in the year 2006. The growth rate of import business in 2006 was 14.34 %. Table-3 Year 2002

Amount in million Taka 11124.85


2003 2004 2005 2006

14908.90 13363.07 11576.71 11791.00

2007

13482.30

Source: Annul report of SIBL (2002, 2003, 2004, 2005, &2006)

16000 14000 12000 10000 8000

Import

6000 4000 2000 0 2002

2003

2004

2005

2006

2007

5.1.5 EXPORT BUSINESS: The export business of SIBL is decreasing trend. The growth rate of export business in the year 2006 was -7.02 % Table-4 Year 2002 2003 2004 2005 2006 2007

Amount in million taka 2287.64 4035.90 4500.23 5528.40 10714.00 9961.60

Source: Annul report of SIBL (2002, 2003, 2004, 2005, & 2006)


12000 10000 8000 6000

Export

4000 2000 0

2002

2003

2004

2005

2006

2007

5.1.6 GROWTH IN NET PROFIT: Earning net profit is increasingly of SIBL. In the year 2007, the net profit after tax of the Bank was Tk. 150037061 million and the growth rate of net profit was 160.34 % in 2007. Table-5 Year 2004

Amount in taka 83,857,707

2005

13,936,185

2006 2007

57,631505 150,037,061

Source: Annul report of SIBL (2004, 2005, 2006 & 2007)


160000000 140000000 120000000 100000000 80000000 60000000 40000000 20000000 0

Net Profit

2004

2005

2006

2007

5.1.7 COMMENTS: Though Social Investment Bank Limited is a new bank, which started its operation in the last half of the year 1995; it has now become a reputed bank. Its deposits and investment are increasing rapidly. Its number of branches has increased up to 24. Its foreign exchange business is also very credible. In a few days, it is well known in the banking sector that SIBL gives a higher standard of banking services. During my precaution orientation program in Local Office branch, I went through many experiences that made me think SIBL-a bank of a very high standard

5.2 RATIO ANALYSIS: Formula

Major Ratios 2007 Profitability Ratios: Income to Total Assets 0.0589

2006

2005

2004

0.0029 2

0.00068

0.00389

0.61%

0.27%

0.71%

4.90%

0.48%

14.00%

Return on Working Capital 0.171931

0.8029

0.000296

0.126

Return on Assets

.8744

0.3534

1.0984

Net Profit รท Total Assets. Net Profit Before Tax รทTotal Assets. Return on Assets 1.09% Return on Net Income Before Tax Investment 18.02% รทShareholders Equity. Profit Before Interest and Tax รท Working Capital Profit Before Interest and Tax รท Fixed Assets

2.0288


Net Income ÷ Equity& Retained Earning Net Profit after Tax ÷ Number of ordinary share Outstanding Market Share Price ÷ Earning Per Share.

Net Income Equity

to 0.7991

Earning Per Share 17.60 Price Earning RatioTimes 28.79 Leverage Ratios: Total Debts ÷ Total Debt to total Assets Assets Ratio 0.932 Total Liabilities ÷ Stockholders Equity Debt to Equity Ratio 13.740 Liquidity Ratio: Current Assets ÷Current Liabilities Current Ratio 0.288 Working Capital ÷ Current Assets Current Test Ratio -0.247

0.6372

0.2451

1.559

9.85

24

143

18.27

76

26

0.950

0.954

0.957

19.079

21.055

22.700

0.164

0.2215

0.0388

0.392

-0.0351

1.57

5.2.1 Interpretation of Ratio Analysis Liquidity Ratio: Liquidity Ratio covers the four most important ratios. Current ratio express that almost in the five years SIBL has sufficient current asset respect with the current liabilities. Quick ratio is also fine but not so much enough in respect with the current liabilities. Cash ratio are also fine from my point of view because cash has opportunity cost also. So huge amount of idle cash is not so good for any company. Operating Cash Flow ratio is also fine. They are generating approximately 8% cash from their operation.

Profitability Ratios Profitability Ratio mainly covers how much profit the organization conducts or achieved by its operation. And we know that Islami Bank’s main concentration is not for profit. So for the particular Islami Bank profitability ratio is not so much important. But its profitability ratios are good from the year of 2004 to 2007. Leverage Ratios Leverage Ratio covers the area in which we are discussing that how much borrowed capital the bank gathered in respect to their own equity of shareholder’s equity. In this particular bank the leverage


ratio, we can see that their almost dependent on external liabilities rather than internal liabilities or shareholder’s equity. 5.3 SWOT ANALYSIS SWOT analysis is the detailed study of an organization’s exposure and potential in perspective of its strength, weakness, opportunity and threat. 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. S- STRENGTHS W-WEAKNESS O-OPPORTUNITIES T-THREATS Here is the SWOT analysis of SIBL: 5.3.1 Strength •

Social Investment Bank is a new commercial bank in banking sector but it has built strong reputation in short time. It provides extra ordinary services to its customers.

The financial condition of Social Investment Bank is very strong, its loan and deposit quality is better than any other commercial banks of Bangladesh.

It has a strong network throughout the country and it provides services of good quality to every level of customers.

Their corresponding relationships with more than 200 international and local banks of different countries have created global accessibility and relationship with people.

Installation and use of highly sophisticated, automated system that enables the bank to have on time communication with all branches reduces excessive

paper work and

time for

valued customer transaction. •

ATM cards give the customer 24 hours withdrawal facilities from his/her account.

Tele banking gives the customer the opportunity to make inquiries and service request over the phone.

Cash advance from credit cards attracts more customers to interact with Social Investment Bank.


5.3.2 Weakness •

One of the greatest weaknesses for Social Investment Bank is shortage of manpower in every division. During the working hour of banks the employees cannot provide proper attention to the customers that enhances customer dissatisfaction.

Higher service charge in some areas of its banking operation discourages customers from opening or maintaining accounts with this bank.

Social Investment Bank is facing some problems from their competitors because competitors are giving a higher interest rate in deposits without any reason which will deteriorate its position than it was before. Because of this a lot of depositors are leaving Social Investment Bank.

There is a very little practice for increasing motivation in the workers by the management.

The SIBL was listed as a problem bank in 2005 by the central bank mainly due to

shortfall

of capital, liquidity crisis and classified loans. The bank has now a surplus capital of TK31 core •

In 2005, the bank’s classified loan was over 11 percent of total outstanding loans whereas its current classified loan is below 4 percent of the total loans

5.3.3 Opportunity •

There is a great opportunity to take new dimension of banking such as Islamic banking, specialized banking. Otherwise, there are many sectors where this can give special privileges.

The credit facility offered by Social Investment Bank has attracted security and status conscious businessmen as well as service holders with higher income group.

5.3.4 Threats •

The emergence of several private and foreign banks within the post few years offering similar services with less or free charge for the facilities can be a major threat for the bank.

Social Investment Bank. Some times the restrictions impose barrier in the normal operations and policies of the bank.

Rival banks easily copy the product offering of SIBL. Therefore, this bank is in continuous progress of product innovation to gain temporary advantages over its competitors.

Sometime political loans are the threat for this banking service.

CHAPTER: 6 RECOMMENDATION


The banks are actually service organizations. The main objectives of the world famous and successful banking organizations are to make profit through addressing the clients time to time with new pieces of service instruments. However the little experience earned through this internship program took to customers’ varying demands. had several frank discussions with the clients and officials, which have helped me to know about the aforesaid findings and draw the following recommendation: •

As one of leading Banks in Bangladesh, SIBL Bank should provide equal emphasis in each department of banking service.

SIBL may also indulge in Tele Marketing. This will smooth the progress of them to expand their sales.

SIBL should pursue an aggressive marketing to come up into limelight. Campaign in order to build up a strong image reputation among the potential customers. Campaign such as ad in the newspaper & magazine, billboard, neon signs, publicity message. SIBL can pursue promotion campaign with its customers particularly the corporate clients to build up a strong report. TV ad is also a major method for attracting the potential customers. As it is an old bank, a strategy of exposing the bank to the public must be taken so that general people will aware about the emergence and growth of the bank. Sponsor in organization’s picnic and arrange or sponsor in cricket match can be method of advertise.

For monitoring and inspection of the current status of all the division for omitting there lacking.

SIBL should appoint customer service officers in all branches. They solve customers’ problem, answer inquiry of customers etc.

SIBL should differentiate its services adopting the modern facilities and diversify products.

To achieve the goal, a bank must establish and adhere to adequate policies, procedures for evaluating the quality of asset and the adequacy of

practices and

loan provision and

reserve. CONCLUSION Now a day banking organizations are one of most vital parts of an economy. Now banks provide various services for individual, different firms, companies even for cultivation. Banks offer a great accumulation of loans for personal and industrial purposes. SIBL is running successfully and for its good deposit performance the bank occupies 2 nd position in the Islamic Banking Sector. Taken all in all, it can be safely said that SIBL action program is directed towards development of an authentic participatory Economy beyond Market Economy. The family empowerment credit program of Social Investment Bank is gaining ground at the grass root field level in Bangladesh. Family Empowerment micro credit and micro enterprises program must be designed in a manner so as to make a) finance, b) production, c) marketing, d) trading, e) local specific survey and research as well


as moral integrity in one package. In SIBL approach, credit conveys the totality in life and clearly linked to social context and cultural setting in conformity with Shariah. There is a better chance in provision for social subsidy. De-secularizing credit may lead to re-writing new economics. It is thus felt that the linking credit to social goals and assignments will have far-reaching theoretical implications for development of an alternative concept of new theories of income, output and employment. This bank expresses its sincere thanks to the government of the People’s Republic of Bangladesh and Bangladesh Bank for their co-operation and valuable guidance to the bank. SIBL also takes this opportunity to their valued clients, patrons, well wishers, correspondents and the shareholders for their support and patronization extended during the year under review. SIBL also records its appreciation for the services rendered by the executives and the members of the staff for the stability and growth of the bank. SIBL needs further active support and continued cooperation of Bangladesh Bank, ministry of finance and other government agencies, executives and employees of the bank, valued partners, clients and the community at large in accomplishing difficult tasks ahead of it. I wish every success for Social Investment Bank Limited in every steps of banking services within the country and outside the country. BIBLIOGRAPHY Books and Journals: 1. Social Investment Bank Annual Report. 2. Operational manual 3. Lecture sheet serve from SIBL training institute Internet: 1. www.siblbd.com 2. www.bangladeshinfo.com 3. www.google.com 4. www.valki.com



Performance evaluation of and sibl